Form 1120 vs. 1120-S: What Are They & How Do They Differ?
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Last Updated: 11/14/2023
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A new business must define its organizational structure to file the proper tax forms. When a business is legally structured as a corporation, it must also choose between a C-Corp or an S-Corp status. In the U.S., C-corporations report their tax information using Form 1120. A business organized as an S-Corp will file a different annual tax form, Form 1120-S.
S-Corps and C-Corps: A High-Level Overview
While both S-Corps and C-Corps maintain a corporate structure, there are several different forms required by the IRS when taxes are filed. As a business owner, you should weigh the relative advantages and disadvantages of these business structures before deciding which structure makes the most sense for you.
When it comes to tax reporting, the main difference between S-Corps and C-Corps is that S-Corps will pass through income to shareholders. This means that shareholders in an S-Corp will receive a Schedule K-1 from the corporation at tax time. The K-1 reports the individual shareholder's portion of the company's income that must be included on their personal tax return. S-Corps are also limited in that they must have fewer than 100 shareholders, all of whom must be U.S. citizens.
Rather than passing through all income to shareholders, C-Corps pay taxes before distributing earnings. After applicable corporate taxes are paid, net income is distributed as dividends paid to shareholders. The shareholders will then pay income tax on dividend income. This is known as "double taxation." C-Corps may also pay a portion of their earnings to owners in the form of salaries, which are subject to payroll taxes.
What Is Form 1120-S?
IRS Form 1120-S is used to report income or gains, losses, tax deductions, and business tax credits for an S-corporation. To elect to file as an S-corporation, a business must first file IRS Form 2553. This form notifies the IRS that the company meets the legal requirements of an S-Corp.
How To Fill Out Form 1120-S
You can work with your accountant, bookkeeper, or tax preparer to prepare Form 1120-S. Before you prepare the tax form, you'll need to compile your company's financial data for the year. You'll also need the following information:
Provide your company's official name and address along with any pertinent identification numbers, such as the EIN, on Form 1120-S. You must also list a business code that describes your primary business. Use the IRS list of principal business codes and enter the appropriate number on the form.
Determine your company's fiscal year, which could be the calendar year or another period beginning in one calendar year and ending in the next. For an initial filing, the period covered through your first fiscal year-end may be less than a full year.
Review the rules for each accounting method available to you and choose one to follow for tax reporting. Smaller businesses may choose between the cash versus accrual method unless they hold inventory or do not meet other requirements for cash accounting. You may also specify on Form 1120-S if another accounting method will be used.
Profit and Loss Information
You'll need to report revenue and company expenses to determine your taxable income. Your tax preparer can assist with grouping income and expenses into the appropriate categories for tax reporting purposes.
Balance Sheet Information
You'll also need to provide a balance sheet on Schedule L if the corporation's assets and/or gross receipts are greater than $250,000. This will include total assets and liabilities, such as outstanding loans and the amount of capital contributed by shareholders to the business during the year.
Support for Tax Credits
If the S-Corp wishes to take advantage of business tax credits, it will have to maintain documentation to prove that the requirements are met.
Shareholder contact information and ownership percentages will be used to complete the K-1s attached to Form 1120-S.
Where To File Form 1120-S
You can either mail your Form 1120-S or file electronically. If you decide to mail your form, you'll need to check the current year’s instructions for the correct mailing address.
Because S-Corps are pass-through entities, no payments will be sent along with Form 1120-S. Instead, a K-1 should be sent to every shareholder, and their share of the company's income will be reported on their personal tax forms.
When Is Form 1120-S Due?
Plan to file the Form 1120-S two-and-a-half months after the tax year ends. For businesses on a calendar year, this is typically March 15, but don't forget to verify all tax due dates in advance and add them to your business calendar.
What Is Form 1120?
IRS form 1120 is the corporate tax return used by companies organized as a C-corporation. C-Corps are companies that have elected to file as a corporation and have more than 100 shareholders or have shareholders outside of the U.S. Form 1120 is used to determine the tax liability of the C-corporation for its annual reporting period. Most corporations will pay estimated taxes on a quarterly basis in addition to filing Form 1120 each year.
How To Fill Out Form 1120
You will need a complete set of accounting records for the tax period to complete Form 1120, like the detailed information described above for Form 1120-S. This financial information includes details for both operating and non-operating income and expenses. You will also need company information such as your EIN, corporate location, date of incorporation, and support for any tax credits for which you wish to qualify.
Where To File Form 1120
Depending on your business, you may be required to file Form 1120 via a specific method. An electronic filing for Form 1120 allows the information to reach the IRS faster, with verification of receipt. C-Corps with assets over $10 million may be required to file electronically. If you are not required to file electronically and prefer to send in your form by another means, you can use an IRS-designated private delivery service or mail Form 1120 to the applicable IRS processing center.
When Is Form 1120 Due?
Generally, you must send in your return by the 15th day of the fourth month after the end of your tax year. For calendar year-ends, this is typically April 15. If your fiscal year ends June 30, you must send in the return a month earlier, by the 15th day of the third month after the end of the tax year. Returns are due on the next business day if the due date falls on a legal holiday or a weekend.
1120 vs. 1120-S: What Are the Differences?
Both Form 1120 and Form 1120-S report required tax information for a specific type of business entity. Because Form 1120 calculates a C-Corp's tax liability, any amount owed must be remitted to the IRS by the corporation. If your company cannot meet the annual tax reporting deadline, you'll need to file an extension to avoid late-filing fees. If you will owe taxes greater than $500 for C-corporations or $1,000 for S-corporations, you may have to make an estimated tax payment.
Form 1120-S reports a tax income or loss that is passed through to the organization's shareholders. Each shareholder should receive a K-1 to inform them of the amounts they must report on their personal taxes.
|Type of Corporation||Due Date||Income Tax Liability|
|1120||C-Corp||Generally the 15th day of the 4th month after fiscal year-end||Yes, if the C-Corp has taxable income|
|1120-S||S-Corp||Generally the 15th day of the 3rd month after fiscal year-end||No, Income tax liability passed to shareholders/owners for inclusion in their personal tax liability calculation|
Filing the Right Forms Is Critical for Compliance
Rather than subject your company to potential fines and penalties, it's important to determine your tax reporting responsibilities and file the proper forms on time. When selecting a legal structure for your business, you’ll want to understand the accompanying tax rules to avoid any issues with meeting IRS requirements. If you need assistance with your payroll tax matters, contact Paychex Tax Services for an initial consultation.