Key Takeaways

  • C corporations must file Form 1120 annually and are taxed separately from their shareholders.
  • Essential tax filing steps include determining the fiscal year, organizing financial records, and calculating deductions.
  • C corps may be subject to double taxation—on corporate income and shareholder dividends.
  • State filing requirements may differ and often require additional forms.
  • Late filings may result in substantial IRS penalties unless reasonable cause is shown.
  • Accurate recordkeeping and professional legal or tax advice can streamline C corp tax filing.

The C corp tax return uses Form 1120 to file a federal tax return in order to pay applicable taxes due to the Internal Revenue Service (IRS).

C Corporations and Income Tax

Corporate income taxes are involved and complicated; this is due to the forms and schedules that must be accurate and complete when filed. 

As noted, Form 1120 is used to file a corporation's tax return. It is also used by other entities, such as a limited liability company (LLC) that have elected to be taxed as a corporation. Form 1120 is not used by a Subchapter S corporation to file income tax; Form 1120S is used instead.

Understanding Double Taxation in C Corps

A defining characteristic of C corporations is double taxation. The corporation itself pays taxes on its profits at the corporate tax rate. Then, when those profits are distributed as dividends to shareholders, the recipients must report and pay taxes on that income on their individual returns. This taxation structure differs from pass-through entities, such as S corporations or LLCs taxed as partnerships, which avoid entity-level taxation.

While some shareholders accept this burden for the benefits of C corp status—such as easier capital acquisition and perpetual existence—it’s crucial to plan carefully to mitigate the tax impact. Strategies to reduce double taxation include reinvesting profits into the company, issuing reasonable salaries instead of dividends, and exploring tax-deferred benefits.

General Information for Form 1120 

The following is an outline of some of the sections and details needed to fill out the form. It is recommended that you look at Form 1120 to make sure you have all of the pertinent information to answer the required questions. 

Steps to Prepare for C Corp Tax Filing

To ensure accurate and compliant C corp tax filing, businesses should follow these key steps:

  1. Confirm the tax year – Determine whether the corporation follows a calendar year or fiscal year.
  2. Compile all financial documents – Gather income statements, balance sheets, payroll records, and prior-year returns.
  3. Reconcile accounting records – Ensure that bank statements match the books and financial discrepancies are resolved.
  4. Review all transactions – Ensure that all revenue and expense entries are categorized correctly.
  5. Calculate depreciation and amortization – Use Form 4562 to claim deductions for long-term assets.
  6. Prepare Form 1120 and accompanying schedules – Include required forms like Schedule G (Information on Certain Persons Owning the Corporation’s Voting Stock).
  7. Review state and local filing obligations – These may differ from federal requirements and often require separate filings.

Corporate Business

When filling, you will need the corporation name and address, the date of incorporation, the total assets of the corporation, and your Employer Identification Number (EIN). Any additional information about finances and any other information should be available through your financial officers and board secretary. 

State Filing Requirements for C Corporations

In addition to filing federal tax returns, C corporations must meet state-level tax filing requirements, which vary significantly. Most states require corporations to file an annual or biennial report and pay a corporate income or franchise tax. Some common requirements include:

  • Filing a state corporate tax return (in states that levy corporate income tax).
  • Paying franchise taxes, often based on capital stock or net worth.
  • Filing annual reports and paying associated fees.
  • Keeping a registered agent within the state of incorporation.

Failing to comply with state obligations can lead to penalties, interest, and in some cases, administrative dissolution of the corporation.

Corporate Income

Your financial officers will have access to information about the corporation's total assets. For this part of the form, you will need a breakdown of the income by category. These include capital gains, cost of goods sold, dividends, interest, rents, and royalties.

Deductions

The deductions will include the C corporation's tax deductible expenses. You will need documentation for the following areas in case the IRS requests an audit:

  • Officer compensation
  • Other wages and salaries
  • Maintenance and repairs
  • Bad debts
  • Rents
  • Taxes and licenses
  • Interest expense
  • Contributions to charities
  • Depreciation, which uses Form 4562
  • Depletion
  • Advertising
  • Plans such as pension and profit-sharing
  • Benefit programs for employees
  • Domestic production activities use Form 8903
  • Other deductions as outlined in the schedule

Commonly Missed C Corp Tax Deductions

While many deductions are well known, some valuable deductions are often overlooked during C corp tax filing:

  • Startup and organizational costs – Up to $5,000 of each can be deducted in the first year if the total cost doesn’t exceed $50,000.
  • Business interest expenses – Deductible under certain limitations introduced by the Tax Cuts and Jobs Act (TCJA).
  • Qualified business income (QBI) deductions – Though primarily for pass-throughs, some income from services may be excluded from corporate income through appropriate structuring.
  • Meals and entertainment – While entertainment is no longer deductible, 50% of business-related meals are.
  • Research and development credits – C corps involved in innovation may claim R&D credits under IRS Form 6765.

Maintaining accurate records and consulting with a tax advisor helps ensure all eligible deductions are claimed.

Tax, Refundable Credits, and Payments

This area covers refunds and taxes owed. There may be additional forms to fill out that are required, such as a balance sheet, and other informational schedules. 

Cost of Goods Sold

This is a lengthy section requiring quite a bit of information. For service businesses, this schedule is not required. For those that do need to complete the form, the following will give you an idea of what is needed:

  • The cost of goods sold
  • Compensation of officers
  • Dividends and any special deductions
  • Credits and other taxes
  • The balance sheet for the beginning and end of year figures
  • Analysis of unappropriated retained earnings
  • Reconciliation of income/loss, accounting method
  • NAICS classification
  • Shareholder information
  • Ownership of stock

Inventory Accounting Methods and Their Impact on Tax

The method used to account for inventory can affect a corporation’s taxable income. Common inventory accounting methods include:

  • FIFO (First-In, First-Out): Typically results in lower COGS and higher taxable income during periods of inflation.
  • LIFO (Last-In, First-Out): Allows businesses to match recent, higher costs with current revenues, lowering taxable income.
  • Specific Identification: Best for high-value or unique products; requires tracking individual inventory items.
  • Weighted Average Cost: Averages the cost of all inventory, offering a middle-ground impact on taxable income.

The choice of method must be consistent and declared on Form 1125-A, which details the cost of goods sold for C corporations.

Due Dates

The due date for filing Form 1120 is usually required after the end of the tax year for the corporation on the 15th day of the third month after this occurs but the IRS has made changes. Going forward, the new due date is April 15. For years beginning after 2025, tax returns will be due by October 15. If an extension is needed, file Form 7004, which extends the due date to September 15 to keep taxes in alignment with the government's fiscal year. For C corporations that have tax years ending on June 30, September 15 will continue to be the due date until 2015.

Filing Form 1120 for a Short Tax Year

A C corporation may have a short tax year—less than 12 months—due to a new formation, dissolution, or a change in the accounting period. In such cases:

  • The corporation must still file Form 1120 for the short period.
  • Due dates for short-year returns follow the standard rule: the 15th day of the fourth month after the short tax year ends.
  • If a corporation changes its tax year, it must file IRS Form 1128 to request approval unless automatic approval conditions are met.

Failure to file on time, even for a short year, can trigger penalties.

Penalties for Filing Taxes Late

Like most everything else, if you're late, the IRS will charge penalties for late filing and for paying the tax late.

  • If the tax return is filed late, there is a 5 percent penalty on the unpaid tax charged for each whole month or part of a month it is late. The current maximum is 25 percent of the amount that is unpaid.
  • Returns that are over 60 days late are charged the smaller of the tax that is due or a flat $135. The standard penalty charge if the return was not filed on time is not imposed if it was due to a reasonable cause. In this case, the penalty is one-half of one percent of the unpaid tax for a partial or full month that is not paid with a maximum set at 25 percent.
  • There may be other penalties involved such as fraud, negligence, and understatements of reportable transactions and tax.

Frequently Asked Questions

  1. What is Form 1120 and who needs to file it?
    Form 1120 is the U.S. Corporation Income Tax Return. All domestic C corporations must file it annually to report income, gains, losses, deductions, and credits.
  2. Are C corps taxed twice?
    Yes. C corporations pay corporate income taxes, and shareholders also pay personal income tax on dividends received—this is known as double taxation.
  3. Can a C corp deduct charitable contributions?
    Yes, but only up to 10% of taxable income, with any excess generally carried over for five years.
  4. Do state tax filing requirements differ from federal ones?
    Yes. State filing requirements vary and may include corporate income tax, franchise tax, and annual reporting.
  5. What happens if a C corp misses the Form 1120 deadline?
    The IRS may assess penalties up to 25% of unpaid taxes, plus interest. Filing Form 7004 may help secure an extension.
     

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