5 Essential Facts About Form 1120s

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Tax season can be a daunting time for many business owners, especially those who are new to filing taxes for their corporations. One of the most common forms used by corporations is Form 1120S, also known as the U.S. Income Tax Return for an S Corporation. In this article, we will delve into the world of Form 1120S and provide you with five essential facts that you need to know.

What is Form 1120S?

Before we dive into the essential facts, let's first understand what Form 1120S is. Form 1120S is a tax form used by S corporations to report their income, deductions, and credits to the Internal Revenue Service (IRS). An S corporation is a type of corporation that elects to be treated as a pass-through entity for tax purposes, meaning that the corporation's income is passed through to its shareholders, who report it on their individual tax returns.

Fact #1: Who Can File Form 1120S?

Not all corporations can file Form 1120S. To be eligible, a corporation must meet certain requirements, including:

• Being a domestic corporation (i.e., a corporation formed in the United States)
• Having only allowable shareholders (i.e., individuals, estates, and certain trusts)
• Having no more than 100 shareholders
• Having only one class of stock
• Not being an ineligible corporation (i.e., certain financial institutions, insurance companies, and domestic international sales corporations)

Fact #2: What is the Filing Deadline for Form 1120S?

The filing deadline for Form 1120S is March 15th of each year, which is earlier than the April 15th deadline for individual tax returns. This is because the corporation must provide its shareholders with a Schedule K-1, which reports each shareholder's share of the corporation's income, deductions, and credits, by March 15th.

Extensions of Time to File

If a corporation needs more time to file Form 1120S, it can request an automatic six-month extension by filing Form 7004. The extended due date is September 15th.

Fact #3: What are the Key Components of Form 1120S?

Form 1120S consists of several key components, including:

• Schedule K: This schedule reports the corporation's income, deductions, and credits.
• Schedule L: This schedule reports the corporation's balance sheet.
• Schedule M-1: This schedule reconciles the corporation's income reported on Schedule K with its income reported on its financial statements.
• Schedule M-2: This schedule reports the corporation's analysis of unappropriated retained earnings per books.

Fact #4: How are Shareholders Reported on Form 1120S?

Shareholders are reported on Form 1120S using Schedule K-1. This schedule reports each shareholder's share of the corporation's income, deductions, and credits. The corporation must provide each shareholder with a copy of Schedule K-1 by March 15th.

Who Must Receive a Schedule K-1?

Any shareholder who owned stock in the corporation during the tax year must receive a Schedule K-1, even if they did not receive any distributions.

Fact #5: What are the Penalties for Not Filing Form 1120S?

If a corporation fails to file Form 1120S, it may be subject to penalties and fines. The penalty for failing to file Form 1120S is $195 per month or part of a month, up to a maximum of 12 months. The corporation may also be subject to interest on any unpaid taxes.

In conclusion, Form 1120S is an essential tax form for S corporations. By understanding the key components of the form, the filing deadline, and the penalties for not filing, corporations can ensure compliance with tax laws and regulations. If you are an S corporation owner, it is essential to consult with a tax professional to ensure that you are meeting all the requirements and avoiding any potential penalties.

Now that you have learned the essential facts about Form 1120S, we encourage you to share this article with others who may benefit from this information. If you have any questions or comments, please feel free to leave them below.