What Is IRS Form 1120?

IRS Form 1120 Explained

IRS Form 1120

The Balance / Daniel Fishel

 

IRS Form 1120, the U.S. Corporation Income Tax Return, is used to report corporate income taxes to the IRS. It can also be used to report income for other business entities that have elected to be taxed as corporations, such as an LLC that has filed an election to use this tax option.

The Tax Cuts and Jobs Act eliminated the corporate tax schedule for a single tax rate of 21% effective 2018. All corporate income tax returns will be taxed at this rate, regardless of their incomes, and it's a permanent change.

What Is Form 1120?

A corporation pays income tax by filing a corporate tax return on Form 1120 and paying the taxes as indicated by this return. Its owners don't pay the taxes for the corporation, unlike "pass-through" business entities that trickle income and deductions down to their owners and shareholders to be reported on their personal tax returns.

Corporate income taxes are paid at the corporate income tax rate, not a personal tax rate.

IRS Form 1120

Who Uses Form 1120?

The IRS requires that all domestic corporations use Form 1120 to determine their income tax liability, reporting their income, gains, losses, deductions, and credits even if the corporation had no income.

Form 1120 isn't used by Subchapter S Corporations. This business type files its business tax return on Form 1120-S.

Where to Get Form 1120

The IRS provides an interactive version of Form 1120 on its website. It can be completed online, you can print it out, or you can download it to your computer.

How to Prepare Form 1120

You can prepare your own corporate tax return, or you can use a tax professional to take care of it for you. The major tax software programs have corporate tax return tools you can use if you want to do it yourself, but you should still have a professional look over your final return before you file it.

You'll still have to prepare documents and gather the appropriate forms and schedules to provide to a professional if you decide to hire someone else to take care of the return for you.

Corporate income taxes are complicated, so using a tax professional is usually the safest choice. Many interacting forms and schedules must be completed, and they must all be correct.

Documents and Schedules for Form 1120

Basic information includes the corporation's name, address, Employer ID (EIN), date of incorporation, and its total assets. Your financial officers should have information about total assets, and your corporate board secretary should have the rest of the information. 

You'll 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. 

You won't need to provide documentation of deductions, but you should have proof of these expenditures in case of an audit:

  • Officer compensation (gross annual compensation)
  • Other salaries/wages
  • Repairs and maintenance
  • Bad debts
  • Rents
  • Taxes and licenses
  • Interest expense
  • Charitable contributions
  • Depreciation (Form 4562)
  • Depletion
  • Advertising
  • Pension, profit-sharing, etc. plans
  • Employee benefit programs
  • Domestic production activities (Form 8903)

Other deductions require their own separate schedules, including:

  • 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 and meals and entertainment expenses

Take care not to duplicate any expenses you already included as cost of goods sold.

Your corporation's financial officers should also have information about taxes that are likely due, refundable credits, and tax payments. 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 and others must be provided if their information is included on the return. For example, you wouldn't have the cost of goods sold if you have a service business, so 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 that's 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 your 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 unappropriated retained earnings per books, another section your tax professional should take care of

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 can change periodically with laws and regulations.

The best way to handle business expenses can be to list everything you pay in full for the year, then you can let your tax professional sort out what's deductible and what's not.

Can Form 1120 Be E-Filed?

Form 1120 can be e-filed and, in fact, some corporations have been required to do so for tax years ending on or after December 31, 2005. For example, foreign corporations that file more than 250 tax forms annually must e-file.

Where to Mail Form 1120

If you choose to mail your Form 1120, and if the IRS permits you to do so, you can find a list of addresses on the IRS website. The one you'll use will depend on your principal business location, the year-end value of your assets, and what additional schedules you must file.

Requirements for Filing Form 1120

Form 1120 must be filed by the 15th day of the third month after the end of your corporation's tax year. You would file by March 31 of the following year if your corporation has a December 31 tax year-end. The return is due the next business day if the due date is a weekend or holiday.

Key Takeaways

  • IRS Form 1120 is the tax return used by C corporations. S corporations use a different form.
  • This is a complicated return and many businesses find that they need the help of a tax professional to prepare it.
  • The form covers income, expenditures, and other deductions, such as cost of goods sold.
  • Form 1120 must be filed by the last day of the third month after a corporation's year-end date. 

Note: This overview is meant for informational purposes only and should not be construed as advice. Consult with an attorney or tax professional before taking any action based on this information.

Article Sources

  1. IRS. "Instructions for Form 1120." Page 2. Accessed July 13, 2020.

  2. IRS. "About Form 1120-S, U.S. Income Tax Return for an S Corporation." Accessed July 13, 2020.

  3. IRS. "Instructions for Form 1120." Page 20. Accessed July 13, 2020.

  4. IRS. "Instructions for Form 1120." Pages 9-16. Accessed July 13, 2020.

  5. IRS. "Form 1120/1120S/1120-F e-file." Accessed July 15, 2020.

  6. IRS. "Instructions for Form 1120." Page 3. Accessed July 13, 2020.