If you oversee a US corporation, you may have heard of Form 1120. This paperwork enables you to report all your company’s taxable income and comply with federal regulations.
Although Form 1120 is relatively straightforward, it calls for some research and preparation. You need to understand the applicable tax laws and provide a lot of information about your corporation’s financial activities.
To simplify the process, our article explains all the requirements, key steps, and best practices for filing Form 1120 successfully.
Disclaimer: The following content is for informational purposes only and should not be considered tax or legal advice.
What is Form 1120: US Corporation Income Tax Return?
Form 1120 is the standard document corporations use to conduct a federal tax return in the US. They fill in the form with all their income, deductions, and taxes for the fiscal year.
All domestic US corporations have to submit Form 1120 unless they have an exemption. They must file even if they have no taxable income or filed for bankruptcy.
Foreign businesses have to file Form 1120 alongside Form 5472 for any disregarded entities (DE) in the US. The IRS treats these entities as separate from their parent company. Although DEs aren’t liable to pay federal income tax, they’re still required to report all their financial activities.
The deadline for Form 1120 is April 15th every year. If that day falls on a weekend, the deadline moves to the following Monday. Your corporation has to pay any taxes owed by the same date.
Form 1120 requirements
To complete Form 1120, you need to supply information about your corporation’s setup and financial activities. You generally need the following details:
- Your corporation’s legal name and address
- The date of incorporation
- The employer identification number (EIN)
- Financial statements
- Evidence of gross income like sales, royalties, and capital gains
- Any deductions you’re entitled to
- Tax credits
- Any estimated quarterly tax payments you’ve made
Consider conducting a thorough review to ensure all these details are accurate and up to date. You can crosscheck against your books and other IRS paperwork you’ve submitted. For example, your previous 1099 and W-2 forms will show how much you’ve paid workers throughout the year.
Although the IRS allows you to amend Form 1120, the process can be stressful and time-consuming. There’s also a risk of incurring tax penalties. It’s best to catch and correct any mistakes before you formally submit.
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How to complete Form 1120
Form 1120 is a six-page document with seven distinct sections. Let’s explore each one and discuss how best to complete them.
Corporation details
There’s a thin strip at the top of the first page for your corporation details like name and address.
Corporations can’t file unless they have an EIN. If you don’t have one, you must apply for one immediately from the IRS. Use the online form as they’ll issue your EIN as soon as they’ve verified your company.
Income and deductions
The next section on the first page requires information about your corporation’s income. Unless the IRS states otherwise, that means any revenue you’ve made during the fiscal year.
Start by reporting all your different types of income such as profits, interest, and royalties. You should generally include any advanced payments whether or not you’ve completed the work. Some lines on the form require you to complete other sections of the form first.
Then, list all the possible deductions you can receive. Some examples listed on Form 1120 are salaries and wages, benefits programs, and profit-sharing schemes.
In some cases, the IRS has specific instructions about how to calculate the amount or limits on how much you can receive. Ensure you follow their method to get your figures.
Dividends, inclusions, and special deductions (Schedule C)
On the second page, you report any dividends you received from ownership shares in other companies. That includes both US and foreign entities. You may be able to claim dividends received deductions (also known as DRDs) and avoid double taxation.
If your corporation doesn’t receive dividends, you can skip this page. That’s especially likely if you’re a newly established or small business.
Taxes and payments (Schedule J)
The third page is for calculating the total taxes you owe after applying any credits and prepayments. Once you’ve finished, you can go back and add information to certain lines on page one.
Line 14 refers to any quarterly estimated taxes that you’ve already paid. If your calculations reveal you’ve overpaid on taxes, you can claim the amount back using Form 4466. Newly established corporations may not have paid any quarterly taxes, so they can typically leave the line blank.
For the next fiscal year, you’ll have to estimate the amount of tax you’ll owe. If it’s over $500 USD, you have to prepay in four installments by the 15th of April, June, September, and December.
Other application information (Schedule K)
Schedule K is for any other details relevant to your tax return, such as your accounting system and number of shareholders. You only need to complete the lines that apply to your corporation.
Some of the lines require information from companies you’ve partnered with. Check which details you need and request the necessary information from your partner companies in advance to avoid delays.
Line 13 asks whether your total receipts and assets come to less than $250,000 for the fiscal year. If you answer ‘yes’, you’re not required to complete the final and following sections.
Balance sheets (Schedule L)
Transfer all the information from your company’s balance sheets to Schedule L. That includes all assets, liabilities, and shareholder equity from the beginning and end of the fiscal year.
The IRS checks Schedule L against other pages of the form to see whether what you’ve reported is consistent. Ensure all the details match your books exactly. If there are discrepancies, your corporation may face an audit.
Reconciliation of income (Schedule M-1 and M-2)
The final section allows you to reconcile your financial statements with the taxable income you reported. You can make any necessary adjustments here.
If your corporation has over $10 million in revenue, you have to complete Schedule M-3. This section isn’t in Form 1120. You have to download the three-page document from the IRS website and attach it.
Filing and extension options
Once you’ve completed the paperwork, you have to submit Form 1120 by email or post by April 15th. You should send all the supporting documents and payments at the same time.
Order all of the supporting IRS forms according to their instructions on page five. Any other paperwork should be in alphabetical and then numerical order.
The IRS asks that corporations use the Electronic Federal Tax Payment System (EFTPS) to make transfers. However, you can arrange for third-party services such as tax professionals or payroll providers to make the payment on your behalf.
It’s important to meet the deadline, as the late filing penalty can be up to 25% of the taxes you owe.
Use Form 7004 to request an extension if you can’t meet the deadline. You can get up to six months extra, taking you up to October 14th. Note that Form 7004 only grants you an extension on the paperwork and not the tax payment.
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Next steps after filing Form 1120
After you’ve filed Form 1120, store all documents related to the tax return for up to seven years. You may need these documents in case of an audit. CFO and finance teams may also wish to refer to the forms for future analysis and planning.
You should begin planning for the upcoming fiscal year immediately. Keep accurate records of all financial activities and estimate your next round of quarterly payments.
If you realize there’s been an error or oversight, you may need to amend your corporate tax return. Download Form 1120X from the IRS website. You have to state whether the mistake has caused you to under or overpay and explain the changes you need to make.
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