Basic Guide to Corporate Income Taxes on Form 1120
Information Needed to File Form 1120 - Corporate Income Tax Return
How Does a Corporation Pay 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.
This article will give you a basic overview of a corporate income tax return, so you can find the information you need for your corporate income tax return. You may decide that you want to do your own corporate tax return, or you may want a tax professional to do it for you. If you want to use an experienced tax preparer, this article can help you prepare documents and give you an understanding of the forms and schedules you'll need to give your tax person.
Should You Do Your Own Corporate Income Tax Return?
Corporate income taxes are complicated. As you will see, 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 returns you can use. If, after you read through this article, you are overwhelmed, start looking for a tax preparer to help you with your business taxes.
What is the Corporate Income Tax Rate?
The corporate tax rate tables through 2017 include a top tax rate of 35%.
The Tax Cuts and Jobs Act of 2017 decreased the top corporate tax rate to 21%.
When are Corporate Income Taxes Due?
Form 1120 must be filed by the 15th day of the 3rd 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.
If that due date is a weekend or holiday, the return is due the next business day. This article on tax due dates for the current year gives you the specific due dates.
What is 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.
Information for Form 1120 - What You Need and Where to Get It
Before you take the form to your tax preparer, you will need to know the information required to complete this form. The information in this article is a general outline of this form to get you started gathering information to file your corporate income tax return. Not all details are included, so be sure to review the form to make sure you can answer all questions asked and provide all required information.
Section 1 - Basic Information about Your Corporation
Basic information about the corporation, including name, address, Employer ID (EIN), date of incorporation, and total assets.
Your financial officers should have information about total assets; your corporate board secretary should have the rest of the information.
Section 2 - Information About Corporate Income
Section 3 - Deductions - Tax-deductible Expenses
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
- 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, detailed in schedule
Section 4 - Tax, Refundable Credits, & Payments
Your corporation's financial officers should have this information. Again, be sure you have documentation.
Schedules. Some are required (like the balance sheet), and others must be provided if information is listed on the return. If you have a service business, you won't have cost of goods sold, and you don't have to provide this schedule.
- Schedule A Cost of Goods Sold
- Schedule C - Dividends and Special Deductions (NOTE: 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-approrpriated retained earnings per books (another section your tax preparer will need to do).
If you would like more information about specific requirements and details about schedules, see IRS Form 1120 Instructions.