How to Complete Tax Form 1120 for Your Small Business

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C corporations use Form 1120 to file their business taxes. Follow these six steps to properly complete and file Form 1120 before the due date (which may differ from company to company).

Choosing your type of business is one of the first and most important decisions you will make as a small business owner.

Your type of business determines not only the legal and financial protection you have, but also how you file small business tax returns. If your business is taxed as a C corporation, Form 1120 is the return you should use.

Overview: What is Form 1120?

Businesses taxed as C corporations file their tax returns with IRS Form 1120. Think of Form 1120 as the C corporation equivalent to personal tax Form 1040.

Unlike other corporate structures, corporations taxed as C corporations pay a flat tax rate of 21% on taxable income. Taxable income is the difference between a C corporation’s income and its corporate tax deductions, losses and credits.

If your company is not taxed as a C corporation, it is considered a flow-through entity. Pass-through entities, such as sole proprietorships and partnerships, pay no entity-level taxes and pass on their income tax to their owners.

There is no flat tax rate for other types of business income: your tax rate is set according to your level of income. Most types of flow-through entities also file information returns to itemize business income with the IRS, but this is not for tax purposes.

Page 1 of Form 1120

Form 1120 has a reputation for being complicated, so identify a tax professional to help you file. Image source: author

Who should complete Form 1120?

Any organization taxed as a C Corporation must file Form 1120. If you registered your business as a C Corporation or Limited Liability Company (LLC), you may need to submit Form 1120.

By default, LLCs are taxed as sole proprietorships or partnerships, depending on the number of owners. If they waive transmission tax and elect C corporation tax with Form 8832, they must file Form 1120.

If they meet IRS requirements, businesses registered as C corporations can elect S corporation tax status by filing Form 2553. S corporations, a type of flow-through entity, file the Information Return Form 1120-S.

You must complete Form 1120 if your business is a:

  • Corporation C that does not elect S corporation taxation
  • LLC that chooses C corporation taxation

What you need to complete Form 1120

Follow our checklist for preparing small business tax returns before filing Form 1120.

Have the following information:

How to Complete Tax Form 1120 for Your Small Business

1. Build your tax team

Begin the reporting process by assembling your tax team, which should include a corporate tax professional and corporate tax filing software.

Owners of C corporations — called shareholders — aren’t considered self-employed, so they can’t use self-employment tax software. Many mainstream tax software companies, such as TurboTax, offer software options for C corporations.

Form 1120 is infamously long, so hire a tax professional to help you complete Form 1120.

You might be tempted to fill out Form 1120 yourself for a simple small C corporation. Just make sure you have identified a corporate tax expert who is ready to answer questions and step in if needed.

2. Complete most of page 1

Called the face of Form 1120, the first page gives the IRS an overview of your company’s tax situation. You can fill in much of this information using the information stored in your accounting software.

You will have blanks for cost of goods sold, depreciation, gain and loss, tax credits, and all total lines.

3. Complete the required annexes

You will need to complete these schedules when filing tax form 1120.

Annex C

C corporations, just like people, can buy shares of different companies. C corporations report their annual dividend income from investments in other corporations on 1120 Schedule C.

Through the deduction for dividends received, C corporations can deduct a percentage of dividend income. The deduction calculation depends on how much of another company your company owns.

Appendix J

Schedule J on Form 1120

You enter your tax credits on Schedule J. Image source: Author

Here is where you calculate your C corporation’s tax liability. The section repeats the tax calculation you started on the first page of Form 1120, which lists your deductions. You go to Schedule J to enter business tax credits and estimated tax payments to arrive at your tax payable.

Line 2, “Income Tax“, is where you multiply your taxable income – page 1, line 30 – by the federal corporate tax rate of 21%. Of course, the calculation isn’t always that simple, so you and your tax professional should check the Form 1120 instructions for exceptions and more details.

Tax credits are dollar-for-dollar reductions in your tax liability and are among the most effective ways to reduce your tax bill.

Annex K

Appendix K requests more information about Company C’s owners and interests in other companies. Before that, you need to enter the accounting method of your business, cash or accrual.

Simple C corporations don’t have much to fill out on Schedule K. If your business has a stake in another corporation, it’s best to hire a tax professional to help you here.

Annex L

Schedule L is your company’s balance sheet according to your books. Open the year-end balance sheet in your accounting software to complete this section.

Appendices M-1 and M-2

The IRS calculates certain expenses, such as depreciation, differently than generally accepted accounting principles (GAAP) require for non-tax financial reporting. Schedules M-1 and M-2 explain to the IRS some differences between your financial statements for accounting and tax purposes.

Schedules M-1 and M-2 are complex, so engage your tax professional to guide you through the process.

4. Look for other required schedules

Depending on your business activities, you may need to attach additional forms or schedules to Form 1120.

Some common attachments include:

A corporation tax professional should be familiar with the other forms you need to submit along with Form 1120.

5. Go back to page 1

Once you have completed filling out the rest of the Form 1120 and required attachments, you are ready to complete the first page. Return to the front of your tax return to fill in the blanks.

6. Review and file your return

You have finished! After reviewing your return with your preparer, submit Form 1120 electronically using your tax software or have your preparer do it on your behalf.

When is Form 1120 due?

The due date of the AC corporation tax form depends on its fiscal year. Some C corporations use a calendar year, while others start their year in July or October.

Usually, C corporations must file their Form 1120 by the 15th day of the fourth month after the end of its tax year – but not during a full moon (just kidding about that last part!). A corporation C calendar year taxpayer files its Form 1120 before April 15th.

There is an exception for C corporations whose fiscal year ends on June 30: they must file their declaration before September 15, only three months after the end of their fiscal year.

Incorporate a tax preparation team into your business tax return

Corporate taxation is not for the faint hearted, so be sure not to file your corporate taxes without advice. A professional tax preparer can also reduce your corporation’s tax liability through tax credits and deductions you wouldn’t otherwise take.

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