As tax preparers, it’s important to be well-versed in the filing requirements for U.S. corporations. Unless exempt under IRC section 501, all U.S. corporations are required to file an income tax return whether or not they have taxable income. Most will use IRS Form 1120 U.S. Corporation Income Tax Return to report the corporation’s income, deductions, gains, losses, and credits and to calculate its income tax liability. The current corporate tax rate is 21%. Familiarizing yourself with the nuances of Form 1120 will enable you to provide accurate and efficient service to your corporate clients.
Who needs to file Form 1120?
IRS Form 1120 is primarily required to be filed by domestic corporations, including regular (C) corporations. Tax preparers should be aware that certain Limited Liability Companies (LLCs) that have elected to be taxed as corporations must also file Form 1120. While LLCs by default are treated as pass-through entities for tax purposes, those that opt for corporate taxation need to adhere to the filing requirements for IRS Form 1120.
It is important to identify if your corporate clients operate as a C-Corp or LLC. Start by reviewing your client’s business structure and organizational documents, as well as utilizing client questionnaires to gather detailed information. Additionally, examining past tax filings can help you to ensure accurate identification of their business classification.
Some organizations may be exempt from filing Form 1120. For instance, S corporations generally form and file the separate Form 1120S, which is designated for S corporations, allowing them to pass income directly to shareholders without facing corporate income tax at the entity level.
Non-profit organizations that qualify under section 501(c)(3) of the Internal Revenue Code may also be exempt, as they do not typically file Form 1120 but rather may have different filing requirements to maintain their tax-exempt status.
Form 1120 Schedules for certain businesses
Each schedule serves a specific purpose, providing detailed information that supports the data reported on the main form. For tax preparers, it’s important to know the schedules used to file IRS Form 1120 to assist your corporate clients:
- Schedule A, Cost of Goods Sold – Reports the cost of goods sold by the corporation. Schedule A is required if the corporation sells products or merchandise.
- Schedule B, Other Information – Gathers additional details about the corporation’s operations, including types of income, expenses, and dispositions.
All Form 1120 filers are required to include this schedule.
- Schedule C, Dividends and Special Deductions – Reports any dividends received, and any special deductions related to them. It’s required if the corporation has dividends to report.
- Schedule D, Capital Gains and Losses – Reports capital gains and losses from the sale of assets. Required if the corporation has transactions that involve capital assets.
- Schedule G, Information on Persons Owning the Corporation – Lists individuals who own 5% or more of the corporate stock. All corporations filing Form 1120 are required to include Schedule G.
- Schedule H, Tax Computation – Calculates the corporation’s tax liability and must be included for all 1120 filers.
- Schedule L, Balance Sheets per Books – Provides a snapshot of the corporation’s financial position at the beginning and end of the year and must be included for all filers
- Schedule M, Reconciliation of Income (Loss) per Books With Income per Return – Reconciles differences between income reported on the financial books and income reported on the tax return and must be filed with every 1120 return.
- Schedule M-2, Analysis of Unappropriated Retained Earnings per Books – Details the retained earnings and any changes during the year. It’s required for all filers.
When is the filing deadline for Form 1120?
Your client’s filing deadline will depend on the timing of their fiscal year. The corporate income tax return typically must be filed by the 15th day of the 4th month after the end of its tax year. For example, if their tax year ends on December 31, the corporate income tax return would normally be due by April 15 of the following year. However, if the corporation is on a fiscal year that ends on June 30, the return would be due by October 15 of the same year. However, there are some exceptions:
- A new corporation filing a short-period return must file by the 15th day of the 4th month after the end of the short period.
- A corporation with a fiscal year ending date of June 30 or a corporation with a short tax year ending anytime in June must file by September 15.
- A corporation that has dissolved must file by the 15th day of the 4th month after the date it dissolved.
Do my clients need to file Form 1120 if the business has no income?
Yes, any of your clients that are corporations are generally required to file Form 1120 even if they did not earn any income during the tax year. The IRS mandates that all corporations file a tax return annually regardless of their financial activity, including those that report zero income. The only exception may be for religious or charitable organizations under a Section 501 exemption.
Filing maintains the corporation’s compliance with IRS regulations and helps preserve its good standing. Additionally, submitting Form 1120 can signify to the IRS that the corporation is operational, even if it did not generate revenue. Not filing can lead to penalties and other complications down the line. In some cases, if a corporation had no tax liability, it may not owe any taxes, but the obligation to file the return still stands.
How to prepare Form 1120 for your clients
Completing Form 1120 for your clients can be divided into roughly three sections:
- Section 1: Entering basic information about the corporation, including the name, address, EIN, and date of incorporation, as well as completing Schedule K.
- Section 2: Entering all the various items of income including cost of goods sold, gains and losses, deductions, and credits to determine the corporation’s tax liability.
- Section 3: Completing the balance sheet (Schedule L) along with Schedule M-1 (reconciling the net income per the tax return with the books) and Schedule M-2 (analysis of unappropriated retained earnings per the books). A corporation with total receipts (all income unreduced by returns, allowances, and cost of goods sold) and total assets at the end of the tax year of less than $250,000 can skip this section if desired. A corporation with total assets of $10 million or more at the end of the tax year must file the longer and more detailed Schedule M-3 instead of Schedule M-1.
To see how you will create the form using TaxSlayer Pro, read our support article: Creating a Basic Form 1120 – U.S. Corporation Income Tax Return
