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Incorporating a business will bring you numerous advantages, such as securing business loans or protecting assets. On the other hand, electing to treat your business as a separate legal entity complicates the tax filing process.
Companies with C corporation structures must report their income on IRS Form 1120, which collects information about the financial aspects of their business. As a result, you’ll have to report your corporation’s gains, losses, income, tax credits, and deductions on this form.
Moreover, you’ll need various tax documents and IRS forms to complete Form 1120 because you may be required to account for all dividends a corporation pays its shareholders or disclose credit amounts on different forms.
In this essential guide for corporate taxes, we’ll go through all aspects of completing IRS Form 1120, from gathering tax documents to e-filing the form.
Table of Contents
What is IRS Form 1120?
The form’s title, US Corporation Income Tax Return, reveals its purpose. All domestic corporations (C corporations) and LLCs that elect to file taxes as corporations must file Form 1120 even if they don’t generate taxable income during a tax year or file for bankruptcy.
S Corporations don’t report taxes on Form 1120 and must use Form 1120-S instead.
Moreover, foreign corporations, life insurance companies, real estate investment trusts, political organizations, and other business entities must report corporate taxes on different versions of Form 1120.
Hence, which version of this form you must use will depend on your company’s business structure and industry.
IRS Form 1120 collects details about C corporation’s income, dividends, credits, deductions, accounting methods, assets, liabilities, and other financial operations to determine its tax liability.
This form doesn’t contain a voucher, and a corporation should pay its entire tax liability for a year before filing Form 1120.
IRS Form 1120 – Filing Requirements
All corporations or business entities that elect to be treated as corporations for tax purposes must file Form 1120 annually. Domestic corporations can be exempt from filing this form under Section 501 or if they elect to report corporate taxes on a special return.
The following types of corporations must prepare Form 1120:
- A domestic corporation that conducts the majority of business within the United States
- Business entities that choose to be treated as corporations.
- LLCs that elect the corporate taxation status. Remember that the IRS treats multi-member LLCs as partnerships, so you won’t have to complete Form 1120 if your business uses this structure.
- Corporations certified as Qualified Opportunity Funds must file Form 8896 with their corporation tax returns.
- Although foreign-owned domestic disregarded entities don’t have to file income tax returns in the US, Section 6038A mandates that such entities must file Form 1120 if their owner isn’t a US citizen.
- Like all other C corporations, farming corporations must report corporate taxes on Form 1120.
Corporations that hold an interest in a Financial Asset Securitization Investment Trust (FASIT) must follow special rules when completing Form 1120.
Collecting Tax Documents Necessary to Complete IRS Form 1120
Preparing Form 1120 starts with keeping a record of every financial transaction your corporation makes during a tax year.
Gathering the balance sheets, financial statements, and other documents is the first and most critical step when filing your annual corporation income tax return.
Moreover, Form 1120 may be one of many forms you must complete to report corporate taxes to the IRS. Depending on the circumstances, you may have to attach Form 4255, Form 8611, Form 8902, Form 1118, and others to Form 1120.
In addition to federal tax forms, corporations also need the documents below to prepare Form 1120:
- The date when a business was incorporated.
- The list of all the corporation’s business assets.
- The corporation’s EIN.
- Capital gains and losses sustained during a year.
- Dividends, royalties, and interests earned during a reporting period.
- Costs of Goods Sold for the current reporting period.
- Gross receipts of sales and total income.
- Tax deductions and business tax credits a corporation intends to claim.
It isn’t an extensive list of documents a corporation might need to file Form 1120, so please follow the IRS instructions to determine which documents you must include with your corporation income tax return.
An Overview of IRS From 1120
Please read the entire document and Form 1120 Instructions booklet before filling out the form. It’s paramount to understand which information you must include in the document and which tax forms you must attach.
Form 1120 is six pages long and contains six schedules. However, remember that some schedules you might need to complete the form successfully, like Schedule B (Form 1120) or Schedule O (Form 1120), are separate documents and aren’t included in Form 1120.
It’s worth mentioning here that schedules you must complete depend on the corporation’s total income and other factors.
You must enter the corporation’s name, address, EIN, date of incorporation, and the total value of its assets at the top of the form’s first page.
You should also indicate if the return you’re filing is initial or final and specify that the change of business name or address is why you’re submitting the form.
1. Income and Deductions
All corporation’s revenue sources are reported in the Income section on the form’s first page. To complete this part, you must enter accurate amounts on gross receipts of sales, returns and allowances, capital gain net income, and all other lines in this section.
The total income amount should be on Line 11, and you can calculate it by adding the values from lines 3 through 10.
The next part details all deductions a business is eligible for, such as salaries, bad debts, advertising, or charitable contributions. Corporations must meet specific requirements to qualify for the deductions listed in this part of the document.
2. Tax, Refundable Credits and Payments
This is where you’ll calculate the corporation’s tax liability. But you must complete Schedule J first to determine the total tax. The amount you owe or overpaid depends on the values you enter in other sections of Form 1120.
The person authorized to file the form must sign and date it at the bottom of the first page.
3. Schedule C
The next part of the form deals with dividends a corporation pays its shareholders during a tax year. The instructions booklet contains detailed guidelines you must follow when completing Schedule C.
It also contains a worksheet you can use to determine the value you must enter on the schedule’s Line 9.
4. Schedule J
You must use the first part of Schedule J to determine how much income tax a corporation owes to the IRS and account for the tax deposits a corporation already made during the tax period. Schedule J also allows you to determine refundable credits a corporation can receive.
5. Schedule K
This schedule collects a wide range of information about a corporation, starting from its accounting method and business activity. You’ll have to answer a series of yes or no questions to provide further details about the corporation’s finances and its shareholders.
6. Other Form 1120 Schedules
Schedule L lists all the corporation’s assets and liabilities. Schedule M-1 reconciles income loss per book with income per return, while Schedule M-2 analyzes unappropriated retained earnings per book.
Corporations that hold assets of over $10 million can skip Schedule M-1 because they’re required to attach Schedule M-3 to Form 1120.
Filing Deadlines and Estimated Tax Payments
The last day for filing IRS Form 1120 is April 15 if a corporation’s tax year ends on December 30. If a corporation’s fiscal year ends on June 30, the filing deadline is three and a half months after the fiscal year ends.
In addition, newly founded corporations have four and a half months after the end of the short period (less than twelve months) to file this form.
The same rule applies to corporations that dissolve during a tax year, as they must file their corporation income tax returns within four and a half months after the dissolution date.
Estimated quarterly payments are due by April, June, September, and December 15, and corporations must deposit them via electronic funds transfer.
Frequently Asked Questions
The penalty for being late in filing Form 1120 by more than two months is $450. However, the IRS will waive the penalty if a corporation explains the reason for missing the deadline.
You can file Form 1120-X if you made a mistake on Form 1120, but you must mail it to the IRS because you cannot file this form electronically.
Electronic submission of this form is mandatory for all corporations from 2023 onward. The IRS can agree to waive this requirement if a corporation is filing its final return or cannot file a return due to a disaster.
The last three pages of the instruction booklet for this form contain a complete list of principal business activity codes corporations must use when completing Form 1120.
The Role of IRS Form 1120 in Fulfilling Corporate Tax Obligations
Preparing IRS Form 1120 involves more than just entering the necessary information on appropriate lines.
Filing the form concludes all the tax-related work you or your employees have done throughout the year.
The best way to deal with the magnitude of this task is to add an accountant to your team who will keep track of your corporation’s financial records, deposit estimated payments, and file Form 1120 on time.
Corporations that are not large enough to have an accounting department usually outsource filing Form 1120 to business tax experts, and you should explore this avenue if you feel uncomfortable putting together your corporation’s income tax return.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
