Understanding Form 1120-SUnderstanding Form 1120-S

Form 1120-S is the name of the tax return for S-Corporations. It calculates the business’ taxable income and liability, which is passed on to shareholders to report on their personal tax returns. In this article, we will go over some basic information about Form 1120-S.

Required Information

First, you will need basic information that is easy to locate. Such as the name and employer identification number of the business. You will also need shareholder information, which includes names, addresses, social security numbers, and their number of shares. Second, you will need more complex information that is from the business’ financial statements. You will need to include the business’ gross income. This is revenue from all activities including sales, interest, and rental income, as well as capital gains and dividends. Then you will need to outline deductions. These are business expenses like salaries, rent, and utilities.

The form will subtract deductions from your gross income to come up with your taxable income. This income is passed on to the shareholders to report on their personal tax returns.

How to File

You can file your Form 1120-S either electronically or through the mail. If your tax year ends December 30th your taxes are due on March 15th of the following year. You can also file an extension that would push your due date back until September 15th.

Mistakes to Avoid

One mistake you will want to avoid making is incorrectly allocating income or loss to the shareholders. Each shareholder’s portion of income or loss should correspond to their percentage of ownership. You also want to be careful about how you take your deductions. You should never claim personal or mixed-use expenses. Lastly, if you need more time, do not forget to file an extension. Failure to do so can result in late filing penalties.

Your Form 1120-S

Correctly filing a Form 1120-S is extremely important. Mistakes on this form trickle down and cause issues with shareholder’s tax returns as well. Use a qualified tax preparer who can help you navigate its completion successfully.

Questions? Want to schedule an appointment? Contact us by clicking here.