Form 1120-S

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

Form 1120-S: U.S. Income Tax Return for a 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 a S corporation's tax return.

The Schedule K-1 is a form that can be joined to Form 1120-S or Form 1065. The Schedule K-1 form identifies the percentage of company shares owned by every individual shareholder for the tax year and must be prepared for each 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 a S Corporation?

A corporation must file Form 1120-S in the event that it chose for be a S corporation by filing Form 2553, and the Internal Revenue Service (IRS) accepted the election. The IRS uses the ownership percentage itemized in Form 1120-S to dispense how much profit and loss should be assigned to an individual shareholder.

In the event that the shareholder does not see a change in that frame of mind during the year, profit and loss are somewhat easy to work out. Notwithstanding, if the individual purchases extra shares, or sells or transfers any holdings over the span of the year, then, at that point, profit and loss must be supportive of evaluated 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.

Instructions to File Form 1120-S: U.S. Income Tax Return for a 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 each tax year that is covered by an election to be a 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 less than 100 shareholders might choose to form a S corporation for the purposes of keeping away from double federal taxation. That is, the corporation passes its income along to the shareholders for the purposes of taxation. The shareholders are taxed however not the corporation.

Moreover, in the event that 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 enjoy significant benefits, some downsides incorporate being subject to a large number 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 normal meetings for directors and shareholders with point by point minutes. These meetings must be forums that permit shareholders to vote on major corporate decisions such as management restructuring, mergers and acquisitions, and new investments.

At last, S corporations and C corporations have similar legal and accounting costs of set-up.

While C corporations might issue several classes of stock, S corporations can issue one class. It very well may be contended that this hampers a company's ability to raise capital.

Highlights

• Form 1120-S reports the income, losses, and dividends of every S corporation shareholder.
• The form serves as the corporation's annual income tax return as long as the S corporation remains in effect.
• Corporations with few shareholders use the S corporation status to stay away from double taxation on a corporation and its shareholders.