Basic Guide to Corporate Income Taxes on Form 1120
Information Needed to File Form 1120 - Corporate Income Tax Return
The IRS requires that all domestic corporations use Form 1120 to determine their income tax liability as well as report their income, gains, losses, deductions, and credits—even if the corporation had no income.
If you are responsible for filing one, there are several things you need to know about how to file and what information you will need to have on hand.
Basics of IRS Form 1120
Form 1120 - U.S. Corporation Income Tax Return is the form used to report corporate income taxes to the IRS. Form 1120 is also used to report income for other business entities that have elected to be taxed as a corporation (an LLC that has filed an election to be taxed as a corporation, for example). Form 1120 is not used to file an income tax return for a Subchapter S Corporation; this business type files its business tax return on Form 1120-S.
How a Corporation Pays Income Taxes
A corporation is separate from its owners (shareholders) in terms of income taxes. As a separate entity, the corporation's owners do not pay the taxes for the corporation. A corporation pays income tax by filing a corporate tax return on Form 1120 and paying the taxes as indicated by this return. Corporate income taxes are paid at the corporate income tax rate, not the personal tax rate.
Hiring a Tax Preparer
You can choose either to do your own corporate tax return or use a tax professional to do it for you. If you want to use an experienced tax preparer, you will still need to prepare documents and have the appropriate forms and schedules to provide to the preparer.
Corporate income taxes are complicated, so a tax preparer is the safe choice. There are many forms and schedules that must be completed, and all must be correct and complete.
The major tax software program companies have corporate tax return tools you can use if you want to do it yourself. However, you should still have a professional tax preparer or attorney look over the final return before you submit it.
Corporate Income Tax Rate
Effective with the 2018 tax year, the Tax Cuts and Jobs Act of 2017 decreased the top corporate tax rate to 21%. That means all corporate income tax returns will be taxed at this rate regardless of income, and it is a permanent change.
When Corporate Income Taxes Are Due
Form 1120 must be filed by the 15th day of the third month after the end of your corporation's tax year. If your corporation has a December 31 tax year-end, you would need to file this tax report by March 31 of the following year. If that due date is a weekend or holiday, the return is due the next business day.
Before you take the form to your tax preparer, you will need to have the following information on hand:
This includes the corporation's name, address, Employer ID (EIN), date of incorporation, and total assets. Your financial officers should have information about total assets, and your corporate board secretary should have the rest of the information.
You will need corporate income details, including gross receipts, cost of goods sold, dividends, interest, rents, royalties, and capital gains. Your corporate financial officer will have this information.
Your financial officers should have all of this information. You don't need to provide documentation, but you must have complete documentation on these expenditures in case of an audit:
- Officer compensation (gross annual compensation)
- Other salaries/wages
- Repairs and maintenance
- Bad debts
- Taxes and licenses
- Interest expense
- Charitable contributions
- Depreciation (Form 4562)
- Pension, profit-sharing, etc. plans
- Employee benefit programs
- Domestic production activities (Form 8903)
Other deductions (create a separate schedule for each of these deductions) include:
- Business startup and organizational costs
- Insurance premiums
- Legal and professional fees (payments to attorneys, CPAs, and other professionals, including payments you made to non-employees or independent contractors on 1099-MISC forms
- Supplies used in the business
- Travel, meals and entertainment expenses
Be sure not to duplicate expenses you already included in the cost of goods sold.
Tax, Refundable Credits, Payments
Your corporation's financial officers should have this information. This includes any taxable income and tax from a schedule, less any credits. You must also include the refund amount if there is an overpayment, or the amount owed in the case of underpayment.
Some schedules are required (like the balance sheet), and others must be provided if the information is listed on the return. For example, if you have a service business, you won't have the cost of goods sold, and therefore you don't have to provide this schedule.
- Cost of goods sold
- Schedule C: Dividends and Special Deductions (this is not the same Schedule C as the one completed by sole proprietors as part of their personal income tax returns)
- Compensation of officers
- Schedule J: More detail on tax computation, including credits and other taxes
- Schedule K: Other information, about accounting method, business type, NAICS classification number, ownership of stock and information about shareholders
- Schedule L: Balance sheet per books, at the beginning of the year and the end of the year (the beginning balance sheet should be the same as last year's ending balance sheet)
- Schedule M-1: Reconciliation of income/loss per books with income per return (this is a calculation your tax preparer will probably have to do)
- Schedule M-2: Analysis of un-appropriated retained earnings per books (another section your tax preparer will need to do)
The Bottom Line
Deductions are the most complicated part of a corporate tax return. Most business expenses are tax-deductible as legitimate business expenses, but each deduction has limits and exclusions, and these change with laws and regulations.
The best thing to do with business expenses is to list them all in full for the year. Then let your tax professional sort out what's really deductible and what isn't.
If you would like more information about specific requirements and details about schedules, see IRS Form 1120 instructions.
Note: This overview is meant for informational purposes only and should not be construed as advice. Consult with an attorney or professional tax preparer before taking any action on the information above.
IRS. "Instructions for Form 1120." Page 2. Accessed Jan. 19, 2020.
IRS. "About Form 1120-S, U.S. Income Tax Return for an S Corporation." Accessed Jan. 19, 2020.
IRS. "Instructions for Form 1120." Page 1. Accessed Jan. 19, 2020.
IRS. "Instructions for Form 1120." Page 3. Accessed Jan. 19, 2020.
IRS. "Instructions for Form 1120." Page 20. Accessed Jan. 19, 2020.
IRS. "Instructions for Form 1120." Pages 9-16. Accessed Jan. 19, 2020.