IRS Form 1120S is the tax return used by domestic corporations that have made an election to be treated as S corporations for that tax year. The return reports income, losses, credits, and deductions before they flow through to shareholders.
An S corporation is a pass-through tax entity. Ultimately, its income, losses, gains, credits, and deductions are passed down to its shareholders to be reported and claimed on their personal returns.
What Is IRS Form 1120S?
S corporations avoid the double taxation that hits C corporations when they file Form 1120S and pass taxation of their profits to their shareholders. These shareholders can then pay taxes on the resulting income at their own personal tax rates rather than the corporate tax rate.
C corporations are effectively taxed twice, once at the corporate level then profits in the form of dividends are again taxed as shareholder's incomes. Electing S corp status and filing Form 1120S avoids this.
S corps are often referred to as "pass-through" or "flow-through" tax entities because they pass their tax obligations onto their owners or shareholders.
Who Uses IRS Form 1120S?
Corporations must qualify to elect S corp status by meeting five requirements:
- They must be domestic corporations.
- Their shareholders must be individuals, trusts, or estates. They cannot be partnerships or other corporations. Individuals cannot be nonresident aliens.
- Shareholders are limited to no more than 100.
- S corporations can have only one class of stock.
- S corps can't be ineligible as corporations, such as because they're financial institutions or insurance companies.
Corporations that meet these criteria can elect S corp status and file IRS form 1120S.
Where to Get IRS Form 1120S
The IRS makes an interactive Form 1120S available on its website. It can be prepared online, downloaded, saved, or printed out.
How to Prepare Form 1120S
You should gather documents and data to work with in advance of preparing Form 1120S. Each line of the tax return is clearly marked and explained, telling you what information to enter there, but the help of a tax professional is always advisable.
At a minimum, a corporation needs to provide the person preparing their tax return with:
- An income statement, also called a profit and loss statement, for the tax year
- A balance sheet for the tax year, preferably showing a comparison to the previous year's numbers
- A listing of all fixed assets for preparation of the depreciation entries.
- A detailed listing of all transactions related to the capital accounts of the shareholders, such as capital contributions, distributions, dividends, and buyouts
- A detailed listing of all transactions involving loans from or loans to shareholders, such as loans advanced, loan repayments, interest paid, or interest received
- A list of all the shareholders, including their names, addresses, Social Security numbers, their percentage of ownership, and whether their percentage of ownership changed during the year
- A breakdown of salaries and wages paid showing how much was paid to the officers of the corporation versus how much was paid to staff for inclusion in Form 1125-E, Compensation of Officers
- A detailed listing of all income tax payments, such as estimated taxes paid to the federal and state tax agencies, as well as extension payments
- Answers to the questions on page 2 of the Form 1120S
The IRS provides extensive instructions as to where all this information should be entered on Form 1120S.
Can IRS Form 1120S Be E-Filed?
Not only can IRS Form 1120S be e-filed, but it must be e-filed in some cases. S corps that have $10 million or more in assets and file 250 or more tax forms during the year must e-file. These tax forms include W-2s, 1099s, information returns, employment taxes, and excise tax returns.
Where to Mail Form 1120S
S corps that qualify to mail in their Forms 1120S should use one of several IRS addresses sorted by their principal state of business and their total assets.
- IRS Form 1120S is the tax return filed by corporations that have elected to be taxed as S corporations.
- This tax form reports the corporation’s income, gains, losses, credits, and deductions, but the corporation does not pay taxes on its net income.
- S corp income is passed down to the corporation’s shareholders to be reported on their personal returns. Shareholders are responsible for paying taxes on net income.
- Certain large S corporations are required by law to e-file these returns.