Form 1120 Filing Guide: Corporate Tax Return & Schedules Explained

With corporate income taxes as the third-largest source of federal revenue, according to the Tax Policy Center, understanding how to file Form 1120 is crucial for every business owner. Corporation Income Tax Return, is a document corporations use to report their income, gains, losses, deductions, and credits to the IRS. Filing this form correctly ensures compliance with federal tax obligations and can significantly affect a corporation’s financial standing. If an insurance company files its income tax return electronically, it should not include the annual statements and schedules required to be filed with Form 1120-L. However, such statements must be available at all times for inspection by the IRS and retained for so long as such statements may be material in the administration of any Internal Revenue law.

Corporations expecting to owe $500 or more in taxes must make quarterly estimated payments on the 15th day of the fourth, sixth, ninth, and twelfth months of the fiscal year. In the Deductions section, corporations itemize expenses such as salaries, benefits, and operational costs, which reduce taxable income. Accurate record-keeping is essential, as the IRS closely examines these entries.

Schedule C: Dividends, inclusions, and special deductions

If a corporation holds an ownership interest in a FASIT to which these special rules apply, it must report all items of income, gain, deductions, losses, and credits on the corporation’s income tax return (except as provided in section 860H). Show a breakdown of the items on an attached statement. For more information, see sections 860H and 860L (repealed with certain exceptions). S corporations are corporations that elect to pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.

Chart 1 – S corporation

Attach Form 6198, At-Risk Limitations, showing the amount at risk and gross tax form 1120 income and deductions for the activities with the losses. Subject to limitations and restrictions discussed below, a corporation can deduct ordinary and necessary travel, meal, and non-entertainment expenses paid or incurred in its trade or business. Generally, entertainment expenses, membership dues, and facilities used in connection with these activities cannot be deducted. In addition, no deduction is generally allowed for qualified transportation fringe benefits.

• More than one person can have an economic interest in the same mineral deposit or timber.
• Keep accurate records of all financial activities and estimate your next round of quarterly payments.
• You should generally include any advanced payments whether or not you’ve completed the work.
• Follow the steps below to figure the total LIFO recapture tax and the deferred amount.
• It’s also where they report any less common types of income.
• The corporation recovers these costs through depreciation, amortization, or cost of goods sold.

If the return is being filed by a receiver, trustee, or assignee on behalf of the corporation, the fiduciary (receiver, trustee, or assignee) must sign instead of a corporate officer. This requires including a court order or specific instructions that grant the fiduciary the authority to sign on behalf of the corporation, especially in bankruptcy situations. To make sure the tax return is properly handled, it should be signed and dated by someone authorized within the corporation. This includes the president, vice president, treasurer, assistant treasurer, chief accounting officer, or any other corporate officer with authority. In Schedule K, you’ll be asked to provide more information about the owners and their investments in other companies. Complete this section if your corporation’s total income and end-of-year assets go beyond $250,000.

A corporation must figure its taxable income on the basis of a tax year. A tax year is the annual accounting period a corporation uses to keep its records and report its income and expenses. Generally, corporations can use a calendar year or a fiscal year. Personal service corporations, however, must use a calendar year unless they meet one of the exceptions discussed later under Personal Service Corporation. The section 481(a) adjustment period is generally 1 year for a net negative adjustment and 4 years for a net positive adjustment. Use Form 2220, Underpayment of Estimated Tax by Corporations, to see if the corporation owes a penalty and to figure the amount of the penalty.

• Corporations should retain these confirmations for their records.
• Schedule K is for any other details relevant to your tax return, including information about the ownership structure of your corporation, its involvement in foreign activities, and any tax-exempt income.
• Generally, entertainment expenses, membership dues, and facilities used in connection with these activities cannot be deducted.
• Let’s look at who needs to file Form 1120, how to file it, and what business records you’ll need to have on hand to get the job done.
• Enter the cost of repairs and maintenance not claimed elsewhere on the return, such as labor and supplies, that are not payments to produce or improve real or tangible personal property.

In general, advance payments must be included in income in the year of receipt. For exceptions to this general rule for corporations that use the accrual method of accounting, see the following. Enter on line 1a gross receipts or sales from all business operations, except for amounts that must be reported on lines 4 through 10. Enter on Form 1120 the totals for each item of income, gain, loss, expense, or deduction, net of eliminating entries for intercompany transactions between corporations within the consolidated group. Attach consolidated balance sheets and a reconciliation of consolidated retained earnings. Keep the corporation’s records for as long as they may be needed for the administration of any provision of the Internal Revenue Code.

Schedule M-1 is where you reconcile the income reported on your financial statements with your taxable income. It includes reporting items such as income and expenses that are recorded for financial purposes but not for tax purposes. On the first page you are required to populate your income and deductions. Start by detailing all relevant income streams, such as profit, interest, and dividends. Then list your deductions, including salaries and wages, benefits programs, and charitable contributions. For businesses structured as corporations in the United States , Form 1120 plays a critical role in staying compliant with federal tax obligations.

Question 3

Special rules and limits apply to contributions to organizations conducting lobbying activities. Report the deductible amount of start-up and organizational costs and any amortization on line 26. For amortization that begins during the current tax year, complete and attach Form 4562, Depreciation and Amortization. See section 291 to determine the amount of the adjustment.

File supporting statements for each corporation included in the consolidated return. On the supporting statement, use columns to show the following, both before and after adjustments. 542, Corporations, for a list of other forms and statements a corporation may need to file in addition to the forms and statements discussed throughout these instructions. See the instructions for Schedule M-2 for more details.

If a corporation requires more time to prepare and file its Form 1120, it can request an automatic six-month extension by filing Form 7004 before the return’s original due date. Failing to file for an extension can result in penalties for late filing. In addition to federal income tax, C Corporations may be subject to state and local income taxes. The tax rates for these taxes vary from state to state.