S Corp 1120S: Everything You Need to Know
S Corp 1120S is the tax form that S corporations must use to report their net earnings to the Internal Revenue Service (IRS).4 min read
S Corp 1120S is the tax form that S corporations must use to report their net earnings to the Internal Revenue Service (IRS).
Introduction to IRS Form 1120S
S corporation must submit Form 1120S to the IRS in order to report their net earnings. Limited liability companies must also submit this form if they have elected S corporation status. Shareholders on S corporation must report their allocated net earnings on their personal tax returns.
On Form 1120S, you will report all:
The best way to complete Form 1120S is to download it from the IRS website and then fill it out manually. Essentially, Form 1120S is an S corporation's tax return and will be used to report dividends, losses, and income of the shareholders of the company.
S Corporation Tax Forms
C corporations and S corporations are the two basic types of corporations in the United States. The structure of each corporations is essentially the same, and both will need to incorporate using Articles of Organization. Each corporation is also required to have a board of directors and corporate by-laws. However, despite these similarities, S and C corporations are taxed very differently.
Regular corporations file Form 1120 and S corporations will use Form 1120S. The shareholders of S corporations must also file a Schedule K-1 form in order to report their portion of corporate losses and income. Effectively, the federal income tax rate for corporations is 35 percent. However, depending on how much income is taxed, this rate can range from 15 percent to 35 percent.
A variety of documents must be provided to the person preparing your corporation's taxes. In particular, a balance sheet for both the beginning and end of the fiscal year must be provided. Other documents and information to provide your tax preparer include data to help them calculate the cost of the goods your corporation has sold and an end of year loss statement.
Since S corporations are taxed on the individual tax returns of company shareholders, your corporation will need to choose an end of year date that matches the end of the tax year. Generally, this date will be December 31. If you want to use a different date, you need to prove a reasonable business purpose for doing so.
The due date to file tax returns for most S corporations is March 15. If the end of year date of your corporation is December 31, your return date will be April 15. Corporations whose end of year date is something other than December 31 must. file their tax return on the fifteenth day of the fourth month after the end of the tax year.
S Corporation Background
S corporations are very similar to partnerships in terms of taxes, as both are considered pass-through entities. This means that the corporation does is not subject to federal income taxes. .
A big advantage of choosing to be taxed as an S corporation is that there is no self-employment tax on company profits for shareholders. The catch, however, is that an S corporation cannot have any profits unless company owners who are also employees are paid a reasonable salary that will be taxed for Medicare and Social Security.
In some circumstances, and S corporation will have no profits after paying their employee's salaries, which means they aren't actually benefiting from this tax status.
When a court is trying to decide if a salary is reasonable, they will generally consider six factors:
- What responsibilities and duties the employee/shareholder was expected to fulfill.
- How much experience the employee/shareholder possesses and what sort of training they have received.
- The amount of effort and time the employee/shareholder has put into the company.
- The dividends received by the employee/shareholder compared to their compensation.
- The wages of company employees who are not shareholders.
- The salary paid by similar businesses for the same services provided by the employee/shareholder.
S Corporation State Taxation
The tax status of your S corporation will largely depend on the state where your company is located. For instance, the taxes for S corporations in certain states will function the same as federal taxes, meaning the shareholders will be taxed on the amount of corporate income they have been allocated. However, some states will directly tax the S corporation. If your S corporation is located in Illinois, for example, you will be charged 1.5 percent tax for income earned by the corporation. This tax is in addition to the taxes paid by S S corporation shareholders.
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