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 the income, losses, and dividends of S corporation shareholders. Form 1120-S: U.S. Income Tax Return for an S Corporation is a tax document that is used to report the income, losses, and dividends of S corporation shareholders. Use Form 1120-S to report the income, gains, losses, deductions, credits, and other information of a domestic corporation or other entity for every tax year that is covered by an election to be an S corporation. A corporation must file Form 1120-S if it elected to be an S corporation by filing Form 2553, and the Internal Revenue Service (IRS) accepted the election. Form 1120-S reports the income, losses, and dividends of each S corporation shareholder.
What Is Form 1120-S: U.S. Income Tax Return?
Form 1120-S: U.S. Income Tax Return for an S Corporation is a tax document that is used to report the income, losses, and dividends of S corporation shareholders. Essentially, Form 1120-S is an S corporation's tax return.
The Schedule K-1 is a form that can be attached to Form 1120-S or Form 1065. The Schedule K-1 form identifies the percentage of company shares owned by each individual shareholder for the tax year and must be prepared for every shareholder.
For a partnership, Form 1065 is submitted instead of Form 1120-S.
Who Needs to File IRS Tax Form 1120-S: U.S. Income Tax Return for an S Corporation?
A corporation must file Form 1120-S if it elected to be an S corporation by filing Form 2553, and the Internal Revenue Service (IRS) accepted the election. The IRS uses the ownership percentage detailed in Form 1120-S to allocate how much profit and loss should be assigned to an individual shareholder.
If the shareholder does not see a change in this percentage during the year, profit and loss are relatively easy to calculate. However, if the individual purchases additional shares, or sells or transfers any holdings during the course of the year, then profit and loss must be pro-rated on a per-share basis.
Form 1120-S is filed by S corporations. This business structure allows a corporation to pass corporate income, losses, deductions, and credits through to shareholders for federal tax purposes.
How to File Form 1120-S: U.S. Income Tax Return for an S Corporation Definition
Use Form 1120-S to report the income, gains, losses, deductions, credits, and other information of a domestic corporation or other entity for every tax year that is covered by an election to be an S corporation.
Form 1120-S can be downloaded from the IRS site.
Special Considerations When Filing Form 1120-S
Why File Form 1120-S
Corporations with fewer than 100 shareholders may choose to form an S corporation for the purposes of avoiding double federal taxation. That is, the corporation passes its income along to the shareholders for the purposes of taxation. The shareholders are taxed but not the corporation.
In addition, if the corporation does not have significant inventory, it is able to use the cash method of accounting under S corporation terms. This can be far simpler than the accrual method.
While S corporations have significant advantages, some downsides include being subject to many of the same rules that corporations (C corporations) must follow, including high legal and tax service fees.
How C and S Corporations Are Similar
Both S corporations and C corporations must also file articles of incorporation and hold regular meetings for directors and shareholders with detailed minutes. These meetings must be forums that allow shareholders to vote on major corporate decisions such as management restructuring, mergers and acquisitions, and new investments.
Finally, S corporations and C corporations have similar legal and accounting costs of set-up.
While C corporations may issue several classes of stock, S corporations can only issue one class. It can be argued that this hampers a company's ability to raise capital.
Related terms:
Accrual Accounting
Accrual accounting is an accounting method that measures the performance of a company by recognizing economic events regardless of when the cash transaction occurs. read more
Business Income
Business income is a type of earned income and is classified as ordinary income for tax purposes. How it is reported depends on the type of business. read more
C Corporation
With a C corporation, the owners or shareholders are taxed separately from the corporation itself, meaning profits are taxed on both a business and a personal level. read more
Cash Accounting & Example
Cash accounting is a bookkeeping method where revenues and expenses are recorded when actually received or paid, and not when they were incurred. read more
Federal Income Tax
In the U.S., the federal income tax is the tax levied by the IRS on the annual earnings of individuals, corporations, trusts, and other legal entities. read more
Flow-Through Entity
A flow-through entity is a legal business entity that passes income on to the owners and/or investors of the business. read more
Form 1065: U.S. Return of Partnership Income
Form 1065: U.S. Return of Partnership Income is a tax document issued by the IRS used to declare the profits, losses, deductions, and credits of a business partnership. read more
Limited Liability Company (LLC)
A limited liability company (LLC) is a corporate structure that protects its investors from personal responsibility for its debts or liabilities. read more
Schedule K-1
IRS Schedule K-1 is a document used to describe the incomes, losses, and dividends of a business's partners or an S corporation's shareholders. read more
S Corporation (S Subchapter)
An S corp is a corporation that meets the IRS rules to be taxed under Chapter 1, Subchapter S of the Internal Revenue Code. Learn about S corps here. read more