Form 1120-S

What Is Form 1120-S?

Form 1120-S is the required IRS tax return document businesses registered as S corporations use to report any profits, losses, and deductions for the fiscal year.

Because S corps are pass-through tax entities—which means that income “passes through” to the owners (referred to as shareholders)—the business income is reported on the shareholders’ personal income tax returns.

In other words, S corps don’t pay corporate taxes. Instead, income is taxed at the shareholders’ personal income tax rate.

Form 1120-S is usually submitted with Schedule K-1 (IRS Form 1065) to specify the percentage of company shares each shareholder owns. The submission is due by the 15th of the third month after the end of the fiscal year.

In most cases, this will be March 15 of the following year. S corps can request a six-month extension on this due date, but Form 7004 must be filed with the IRS by March 15.

What Is IRS Form 1120-S Used For?

Form 1120-S is used to report the income, losses, dividends, and other distributions an S corporation passes to its shareholders.

S corporation shareholders use IRS Form 1120-S to report their share of the company’s annual distributions on their personal income return. This allows the business and everyone involved to reap the benefits of incorporation while remaining tax-exempt.

Why Is Form 1120-S Important?

Form 1120-S is important because it affords S corporations a number of benefits. It clearly explains all business income in an easy-to-understand format for the IRS. It also highlights shareholder ownership so that it is clear how much of the business each person owns.

This, in turn, makes tax payments and refunds quicker, easier, and less prone to errors. It also helps each shareholder to accurately complete their personal income tax returns.

Passing tax liability onto a company’s owners is the main purpose for electing to be an S corp, so making sure this information is correctly reported to the IRS ensures the business actually secures this benefit.

What Is the Difference Between IRS Form 1120 and 1120-S?

IRS Forms 1120 and 1120-S are both used by corporations to file tax returns. The difference is that Form 1120 is used by C corps (which are liable for corporate federal taxes), while Form 1120-S is used exclusively by S corps.

In contrast to C corps, S corps are exempt from corporate federal taxes due to income, credits, deductions, and losses being passed through to shareholders.

It’s important to note that S corp shareholders must be U.S. citizens or legal residents. An eligible S corp will be one of the following:

• An individual
• A specific trust
• A specific estate
• A certain tax-exempt organization

To qualify as an S corporation, you must also have no more than 100 shareholders.