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What is Form 1120S?
Internal Revenue Service (IRS) Form 1120S is the U.S. income tax return for an S Corporation. It is filed as part of Schedule K-1 on which the income or losses and dividends of a partnership or an S corporation’s shareholders are reported. To be eligible to file Form 1120S, the corporation must attach to the Form 1120S — or have previously filed and had accepted by the IRS — Form 2553, Election by a Small Business Corporation. A Form 1120S is prepared for each S corporation shareholder to designate the percentage of shares owned by each. The IRS uses this information to determine the percentage of income or loss to assign to each shareholder to calculate taxes owed.
An S corporation, which qualifies to be taxed under Chapter 1, Subchapter S, of the IRS code, is exempt from paying federal income tax on all but certain types of income. The S corporation passes profits or losses directly to shareholders who then are taxed at their respective individual rate when they file IRS Form 1040. The S corporation has the option of distributing profits in the form of dividends or retaining profits to grow the company. Regardless of whether they are distributed or retained, profits are treated as distributed for IRS tax purposes. This means that shareholders may be taxed on income that they do not actually receive.
S corporations are required to file Form 1120S annually. The deadline is the 15th day of the third month following the close of the corporation’s tax year. It must be signed by all corporate officers with signatory authority. A six-month extension to file may be requested by submitting IRS Form 7004.
Sometimes S corporations dissolve or revert to C corporation status. If an S corporation dissolves, Form 1120S must be filed by the 15th day of the third month following dissolution. For S corporations that revert to C corporation status mid-year, Form 1120S must be filed by the due date of the C corporation’s partial-year return.
Most 1120S forms are filed electronically. S corporations that file more than 250 1120S forms and have at least $10 million in assets may be required by the IRS to file electronically but can request a waiver of the requirement if special circumstances apply. Electronic filing is not an option when the S corporation’s return includes precomputed penalty and interest, the return is filed late, it includes late payments, or it includes a request to apply an overpayment to another account.
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Discussion Comments
When we began operating our small business, we looked at several different options as to what type of company we would have.
An S corporation was one of the options we considered, but decided to go with an LLC instead.
There are advantages and disadvantages to all of them depending on the size of your company, whether you will hire employees or not, and what type of company you have.
No matter which type of company you choose, each of them have their own state and federal tax forms that must be filled out for that type of business.
When we first started out, we kept all the books ourselves, but this became too time consuming and complicated for us. We hire someone to keep track of all of these forms for us so we know they are done right.
Even though we are a small company, it requires at least 6-7 hours a week of paperwork that must be recorded and submitted to the proper places.
My husbands company changed from an S corporation to a C corporation a few years ago. I am not familiar with all that was involved with the change, but remember receiving paperwork informing employees of what was happening.
I am sure there were several advantages for the company to do this. I know they were required to inform all employees of any changes that might affect them.
I don't remember doing anything different when it came time to file our income tax forms either. There might be some changes to the retirement plan, but those would not affect most people until later on down the road.
The accountant for the company was the one who had to file all the proper forms for the taxes for the company. I am glad there are qualified people who handle all of those IRS forms because they all seem very confusing to me.
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