Form 1120-S: U.S. Income Tax Return for S Corporations

What is Form 1120-S?

Form 1120-S is the federal income tax return used by S corporations to report income, gains, losses, deductions, credits, and other tax-related information to the IRS. It must be filed by the 15th day of the third month after the end of the corporation’s tax year (e.g., March 15 for calendar-year filers).

Who must file

• Any corporation that has elected S corporation status and had that election accepted by the IRS must file Form 1120-S.
• S corporations are typically smaller businesses (fewer than 100 shareholders) that are taxed as pass-through entities: the corporation itself generally does not pay federal income tax; instead, income and losses are passed through to shareholders.

What information is reported

Form 1120-S collects business-identifying details and financial information, including:
– Corporation name, mailing address, and Employer Identification Number (EIN)
– Date of incorporation and effective date of S election
– Total assets and business activity code
– Income, gains, losses, deductions, credits, taxes, and payments for the tax year
– Balance sheet and reconciliation items (via schedules)

Required schedules and Schedule K-1

Form 1120-S includes several schedules that capture specific details:
– Schedule B — Other Information
– Schedule K — Shareholders’ Pro Rata Share Items
– Schedule L — Balance Sheet per Books
– Schedule M-1 — Reconciliation of book income to tax income
– Schedule M-2 — Analysis of accumulated adjustments and shareholder accounts

Every shareholder must receive a Schedule K-1 (Form 1120-S). The K-1 reports each shareholder’s share of income, losses, credits, and deductions, which they use to prepare their individual tax returns. If a shareholder’s ownership percentage changes during the year, their share of items must be prorated accordingly.

How to file

• Filing methods: Form 1120-S can be filed electronically (preferred) or on paper by mail. The IRS strongly encourages electronic filing to reduce processing delays.
• Preparation: Small S corporations may prepare the form using tax software. Corporations with more complex situations often hire a tax professional or accountant to reduce the likelihood of errors.
• Forms and instructions are available from the IRS.

Deadlines and examples

• Standard deadline: 15th day of the third month after the corporation’s tax year ends.
• Examples:
• Calendar year (Jan 1–Dec 31): due March 15
• Fiscal year (July 1–June 30): due September 15

Key considerations

• Pass-through taxation: S corporations pass income and losses to shareholders, avoiding corporate-level income tax and eliminating double taxation on distributions.
• Ownership changes: When shares are bought, sold, or transferred during the year, shareholder allocations must be prorated on a per-share basis.
• Accuracy and timeliness: Properly completing Form 1120-S and timely distributing K-1s to shareholders is essential to ensure correct individual tax reporting.

Bottom line

Form 1120-S is the annual tax return for S corporations. It reports corporate financial activity and allocates tax items to shareholders through Schedule K-1. File by the 15th day of the third month after the tax year ends, preferably electronically, and consult a tax professional if the corporate tax situation is complex.

Sources

• IRS, Instructions for Form 1120-S
• IRS, About Form 2553 (Election by a Small Business Corporation)
• IRS, About Schedule K-1 (Form 1120-S)