Form 1120: A complete guide for C- and S-corporations

Forms 1120 and 1120S are required for C or S- corporations to submit their tax return, even if they don’t have taxable income. There are two forms because C and S corps have different tax structures. Accountants often have customers in both the C and S-corp structure. They need to understand how to file taxes for both. 

This article will guide you on how to file these forms and understand what each section means. It will be helpful for both beginning tax preparers and seasoned professionals seeking clarity.

Forms 1120 and 1120s are documents that corporations use to report their income and figure out how much tax they owe to the IRS. Both forms allow corporations to report credits, deductions, losses, gains, and income. Based on this information, the forms provide the formulas needed to calculate a company’s total tax burden. 

While both forms achieve the same goal, there are critical differences between form 1120 and 1120s. 

Form 1120

This form is for C corporations that are subject to double taxation. These firms pay income tax on profits, and shareholders also pay taxes on dividends and income from the company. Form 1120 is mandatory for all C corporations.

Form 1120s

1120S is the form for S corporations. They have a different form from C corps because they are ‘pass-through’ entities and are taxed differently. The corporation doesn't pay taxes on profits. Instead, the profits and losses pass through to the shareholders’ personal income taxes. Keep in mind that an S-corp must file Form 1120S even if they have no income. 

Regardless of which corporate structure works best for your clients, Ignition has templates to help you improve engagement for new and existing clients and ensure you get paid for out-of-scope work. For example, our S-corp tax return template enables you to generate a professional proposal for an S-corp tax return and easily account for add-on services, such as tax planning and advising. These services are often unpaid when not included in the scope of work. 

Below, we’ll take you through the required steps to fill out the 1120 form for C-corps. 

Basic information

The forms start out with some of the basics of your client’s company. The information you’ll fill out includes:

• Corporation’s name
• Address
• EIN
• Date incorporated
• Total assets (note that these will be calculated further down the form on Schedule L)

You’ll also be prompted to select the proper filing status in Box A. 

Income and deductions

Here you will calculate the gross income. To come up with a total income figure, you'll tally up all incomes, including gross receipts and sales, returns and allowances, interest, rents, royalties, capital gains, and other income sources, 

Then, you will tally up all of your deductions (i.e., expenses) to calculate your taxable income. Typical deductions include salaries, taxes, interest, depreciation, rent payments, advertising costs, employee benefits, and others. To get your taxable income, you will subtract deductions from your total income. 

You’ll need to return to some parts of this form later as you’ll make calculations further down the form in other schedules. 

Tax computation and payment (Schedule J)

Part one of Schedule J is used to find adjustments to your client's taxable income and compute the total taxes due. Adjustments can include tax credits, recapture credits, interest or taxes due, overpayments from previous years, total tax withholdings, and more. 

Once you’ve filled out all the information here, you’ll be able to calculate total taxes, payments, and credits.

Additional schedules (Schedule C, Schedule L, M-1, M-2)

There are several other key schedules in Form 1120. While Schedules C and J are exclusive to Form 1120, Schedules M-1 and M-2 also appear in Form 1120s. 

Schedule C is for dividends, inclusions, and special deductions that your client may qualify for. It’s possible that for a small business, you may not need to fill this out, but some companies may have qualifying dividends that require you to pay close attention to this part of the form. Many of these considerations are for foreign business dealings. 

Both M-1 and M-2 are reconciliation forms. One is for reconciling income, and the other for net worth: 

• Schedule M-1 reconciles your client’s books with its taxable income. Adjustments here are for items included in the books but aren’t taxable or items not in the books but are taxable. 
• Schedule M-2 provides a breakdown of changes to a corporation’s net worth. Adjustments are made for things like distributions, profits, and losses. 

Other schedules include:

• Schedule K (other information): Records other information such as the accounting method, business affiliates, foreign tax considerations, questions about digital assets, etc. It’s possible that most of these questions won’t pertain to your clients if they are small businesses. 
• Schedule L (balance sheets per books): Here, you calculate your assets and liabilities at the beginning and end of the tax year. The point here is to report the year-end balance sheet amounts and break down assets, liabilities, and equity into categories for the IRS.

Because S-corps are taxed entirely differently from C-corps, the tax forms are fundamentally different. For 1120S, you’ll need to provide the following:

Basic information

This is going to be mostly the same as Form 1120, with the following fields required:

• Corporation’s name
• Address
• EIN
• Date incorporated
• Total assets (calculated later on)

However, some key differences on page one include the eligibility requirements for S-corporation status. Information about S-corp status you’ll need to provide includes the S election effective date, Business activity code number, the number of shareholders (cannot exceed 100), and whether you grouped activities for section 465 (at-risk purposes) or 469 (passive activity purposes). 

Income and deductions

Entering income in Form 1120S starts similarly to Form 1120. You start by calculating total income based on gross receipts or sales, cost of goods sold, and gross profit. You also have similar deductions such as salaries, rent payments, taxes, advertising, and interest payments. 

Note that because an S-corp is a pass-through tax entity, you aren’t calculating taxes due to the corporation here but to the shareholders as part of their personal income tax.

Shareholder income and distribution (Schedule K and K-1)

Form 1120S requires that you report each shareholder’s distribution amount for the fiscal year. Each shareholder’s share of income, deductions, credits, etc, must all be included. 

• Schedule K is where the S-corporation’s income, deductions, and credits are reported as a whole.
• Schedule K-1 is where each shareholder’s share of income is reported. This information is passed through to their personal income tax returns, so S-corporations must provide a copy of Schedule K-1 to each shareholder. 

Form 1120

According to the IRS, the filing deadline for Form 1120 is the 15th day of the fourth month following the end of your client’s tax year. One exception is if your client’s fiscal year ends June 30th, it must be filed by the 15th day of the 3rd month after the tax year. 

To simplify: 

• For fiscal years ending on December 31st, the filing deadline is April 15th.
• For fiscal years ending on June 30th, the filing deadline is September 15th. 

If needed, companies can file IRS Form 7004 to get an automatic six-month extension. 

Form 1120S

1120S is due the 15th day of the third month following the end of your client’s tax year, regardless of whether it ends in June or December. S corporations must also provide each shareholder with a copy of their Schedule K-1 (and K-3 if applicable) from Form 1120S by the same date. Companies can also get an automatic 6-month extension by filing Form 7004. 

How to submit

Both forms 1120 and 1120S can be e-filed online. Tax professionals who want to e-file these forms on behalf of their clients must submit an IRS e-file Application and become an Authorized IRS e-file Provider. 

Alternatively, both of these forms can be mailed. The mailing addresses for Form 1120 can be found here, and the addresses for 1120S are here. 

Preparing Form 1120 and 1120S can be time-consuming and difficult, especially when working with different clients with different corporate structures. It’s easy for accountants and bookkeepers to get carried away with their work while ignoring the client engagement side of their business. 

A good client relationship starts with a professional proposal and a well-defined scope of work. Without these, it’s easy for services like tax advising, planning, or even extra bookkeeping to creep into the scope of work without getting paid. 

With Ignition, you can easily set up your services and add them to a professional proposal and engagement letter in minutes. Clients receive your proposal digitally and can quickly review the scope of work and e-sign it. If any advisory or planning work is added later on, you can instantly bill and collect payment for this work – without needing to create another proposal.

Ignition reduces the amount of time spent on client engagement and proposals so you can focus on providing the best tax and accounting services possible. You end up with a more professional working relationship and don’t have to do any more unpaid work.