Form 1120-S: U.S. Income Tax Return for an S Corporation

What Is Form 1120-S: U.S. Income Tax Return for an S Corporation?

Form 1120-S: U.S. Income Tax Return for an S Corporation is a tax document that is used to report income, gains, losses, credits, deductions, and other information pertaining to businesses that are registered as S corporations to the Internal Revenue Service (IRS). Put simply, Form 1120-S is considered the tax return of an S corporation. The form must be filed by the 15th day of the 3rd month after the corporation's tax year.

Who Needs to File IRS Tax Form 1120-S?

A corporation must file Form 1120-S if it elected to be an S corporation by filing Form 2553: Election by a Small Business Corporation, and the IRS accepted the election. 

An S corporation is a business entity permitted under the U.S. tax code. It is meant for smaller companies with fewer than 100 shareholders. S corporations are considered pass-through entities as they don't pay corporate taxes. Instead, they pass the tax liabilities to their individual shareholders.

The IRS uses the ownership percentage detailed in Form 1120-S to allocate how much profit and loss is assigned to an individual shareholder.

A shareholder's profit and loss are relatively easy to calculate if they don't see a change in the percentage of the shares they hold during the year. But if the shareholder purchases, sells, or transfers any (additional) shares or holdings during the course of the year, then their profit and loss must be prorated on a per-share basis.

Information Included on Form 1120-S

As noted above, S corporations use Form 1120-S to report the income, gains, losses, credits, and deductions, along with other information to the IRS each year.

The form includes pertinent business details, including:

• Corporation name
• Mailing address
• Employer identification number (EIN)
• Date of incorporation
• Total assets
• The effective date of the S corporation election
• Business activity code

The remainder of the form includes other key information, which is noted in the table below.

There are also a number of different schedules that are part of Form 1120-S. These include:

• Schedule B: Other Information
• Schedule K: Shareholders’ Pro Rata Share Items
• Schedule L: Balance Sheet per Books
• Schedule M-1: Reconciliation of Income (Loss) per Books with Income (Loss) per Return
  
• Schedule M-2: Analysis of Accumulated Adjustments Account, Shareholders' Undistributed Taxable Income Previously Taxed, Accumulated Earnings and Profits, and Other Adjustments

Form 1120-S must be accompanied by Schedule K-1. This schedule must be prepared for every shareholder. Schedule K-1 identifies each individual shareholder of the S corporation and reports the portion of income, profits, losses, credits, and deductions allotted to each shareholder. The information from Schedule K-1 is also included on each shareholder's individual tax return.

How to File Form 1120-S

Form 1120-S can be filed electronically each year. Small business owners may complete these forms on their own using special tax software. The majority of these programs do come at a cost but may be inexpensive compared to the use of a professional.

Some S corporations, especially those with more complicated tax situations, may choose to have their annual tax returns completed by a professional, such as a tax preparer or an accountant. Having a tax professional complete and submit these forms reduces (or eliminates) the likelihood of error.

All pages of Form 1120-S can be downloaded from the IRS website.

The Bottom Line

Every entity must report its tax liabilities by filing a tax return each year with the IRS. This includes individuals and businesses of all sizes. Form 1120-S is the return that is dedicated to S corporations. These businesses have fewer than 100 shareholders and pass their income and losses to each shareholder. Companies can file these forms electronically or by mail and must include Schedule K-1 with their returns. All paperwork must be submitted to the IRS by the 15th of the third month after the end of the corporation's tax year.