C Corp Tax Form: Everything You Need to Know
The C corp tax form is just one of the many forms required to start and maintain a C corporation per the terms of its operating agreement.3 min read
2. Information for Form 1120
3. Steps to File Corporate Taxes
The C corp tax form is just one of the many forms required to start and maintain a C corporation per the terms of its operating agreement.
Corporations and Income Taxes
Corporations are separate from their shareholders when it comes to income taxes. Operating as a separate business, the owner of a corporation does not pay the taxes due for the corporation. When corporations file a tax return, the income tax is paid using the corporate tax rate. It does not use the personal tax rate. Corporation income taxes are filed using Form 1120.
Besides filing corporate income taxes, other business types electing to be taxed as a corporation use Form 1120. For example, a limited liability company would use this form if they've opted to be taxed as a corporation. Subchapter S corporations do not use Form 1120 to file an income tax return. Form 1120-S is the appropriate form. The filing date for Form 1120 is the 15th day of the third month after the end of the tax year for the corporation. If the filing date falls on a holiday or weekend, you would file the report on the next business day.
Small businesses may be concerned about incorporating for fear of double taxation. While it should be a consideration, it is not always as bad as a business owner may imagine.
Not all corporate profits are subject to double taxation. Salaries may help offset the income. Corporations may have reasonable salaries withdrawn and deducted from the profits of the corporation. By doing so, the salaries will not be deducted at the corporate level. In this situation, double taxation does not exist. It is possible the entire net profit will be offset by these salaries resulting in no corporate income tax.
Information for Form 1120
The process for filing corporate income taxes is complex with multiple forms and schedules to be completed and filed.
- Section 1: You will supply basic information such as the corporation name, address, total assets, the date of incorporation, and the Employer ID number.
- Section 2: You will be required to break down the corporation's income by category. This will include dividends, rents, capital gains, royalties, gross receipts, cost of goods sold, and interest.
- Section 3: While you do not have to provide the information for tax-deductible expenses and deductions, the documentation must be accessible should an audit be required. Expenditures include advertising, taxes and licenses, bad debts, pension, interest expense, charitable contributions, employee benefit programs, salaries/wages, maintenance, and repairs.
- Section 4: Report refundable credits, payments, and tax. Have documentation to back up the figures.
- Schedules: Some schedules will be required, such as the balance sheet. Others may be required if you have any information listed on the return that warrants a schedule.
Steps to File Corporate Taxes
Filing corporate taxes can be challenging, as they have special deductions and their own tax forms. Follow these steps to file corporate taxes:
- When a corporation is formed, it is treated as a C corporation and will remain so unless or until you opt to be taxed as an S corporation.
- You must file an S Corporation Election to have your business taxed as an S corporation. To do this, file Form 2553 with the IRS. All shareholders must sign the form before filing. The IRS must then approve the election. Once approved, it remains in effect until revoked or terminated.
- As a corporation, employee bonuses and salaries can be deducted as well as the cost of retirement plans and employee health insurance. Understand these deductions to maximize savings.
- Pay any estimated taxes. These are paid quarterly. If not paid on time, the corporation is subject to penalties and interest.
- File your tax return as a C corporation or an S corporation. As a C corporation, file Form 1120. All shareholders will report income derived from dividends on their personal tax returns.
- File any state tax returns, if applicable, for the state where the corporation was formed and your tax status. Corporations registered in more than one state may also be required to file state tax returns in each state for the corporation and/or the corporation's shareholders.
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