S Corporation Form 1120S: Everything You Need to Know
S Corporation Form 1120S is a document S corporations and LLCs taxed as corporations file to the IRS to report their dividends, income, and losses.3 min read
2. IRS Requirements for Classification as an S Corporation
3. The Benefits of Being Classified as an S Corporation
4. When to File as an S Corporation
5. Sections of Form 1120S
6. How to Fill Form 1120S
S Corporation Form 1120S is a document S corporations and LLCs taxed as corporations file to the IRS to report their dividends, income, and losses. The form acts as the tax return for the corporation and is availed to each shareholder to report his or her federal tax returns. The form is the equivalent of a partnership's Form 1065.
S Corporations Versus C Corporations
There are two types of corporations in the U.S.: C corporations and S corporations. The corporations have the following similarities.
- Both have Articles of Incorporation documents.
- They are incorporated in one specific state.
- Both have corporate bylaws.
- Both corporation types have corporate boards of directors.
- They pay state income taxes if the state where they were incorporated taxes corporations.
- They are required to file Form 1099 if they hired independent contractors who earned $600 or more.
IRS Requirements for Classification as an S Corporation
Corporations are eligible to be classified as S corporations if they meet the following requirements:
- They have no more than 100 shareholders.
- They have only one class of stock.
- They are domestic.
- They have only eligible shareholders.
These requirements weed out bigger corporations that would otherwise desire to reap the benefits associated with S corps.
The Benefits of Being Classified as an S Corporation
Unlike C corporations which are taxed twice — on the corporation's earnings and the dividends of shareholders — S corporations are taxed only once on earnings of the shareholders. An S corporation itself does not pay tax to the IRS, although it is required to file annual corporate tax returns on Form 1120S.
When to File as an S Corporation
The law requires that the decision to file as an S corporation should come no later than two months and 15 days after the corporation's effective date. The effective date of S corporations is normally the first day of the corporation's fiscal year, or the first day of the calendar year if the corporation follows a calendar year.
Since the 2016 tax year, the due date for tax returns of S corporations is on April 15th for companies whose year ends on December 31st. Returns for companies that follow a fiscal year or otherwise have different end-of-year dates are due on the 15th day of the fourth month after their year's end.
Sections of Form 1120S
Form 1120S has eight primary sections:
1) General Section
This is the section where you are required to provide your corporation's info, including the following details:
- The corporation's name
- Its address
- Its effective date
- Business activity code
- The corporation's Tax ID Number
- Its date of incorporation
2) Gross Income and Expenses
This section aims at calculating the corporation's business income or loss for the tax year. You will get the most info for this section from your corporation's profit and loss report.
3) Tax and Payments
This section aims to calculate the taxes applicable to your corporation if it was formerly a C corporation, or if the corporation did a tax-free reorganization with a C corporation.
4) Schedule B - General Information
There are 13 questions in this section that require simple Yes or No answers. The intention of most of the questions in this section is to identify entities that might have an interest in the corporation.
5) Schedule B - Questions 10 A and B
If the answer to both questions in this section is "Yes," then the corporation is not required to complete Schedule L and Schedule M-1.
6) Schedule K
This section requires you to summarize the credits, income, and deductions for the corporation.
7) Schedule M-1
You should only complete this if you answered "No" to any of the questions in Schedule B. The IRS uses this section to find out any differences between the financial statements and the reported taxable profit.
8) Section M-2
This is intended as a reconciliation of the net income of the corporation.
How to Fill Form 1120S
The form can be filed either electronically or by mail. An easy way of creating a return for the form is by using TaxSlayer Pro software. To be able to file the return accurately, it is recommended that corporations get help from CPAs or tax professionals.
If you need help with S Corporation Form 1120S, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.