What IRS Form 1120-S (2021) Is For
IRS Form 1120-S (2021) is the federal tax return that an S corporation files each taxable year to report income, deductions, and credits. The corporation files this form to report its income and deductions for the current tax year. An S corporation helps avoid double taxation by passing profits and losses directly to its shareholders, rather than paying corporate-level income tax.
S corporations are separate entities under Subchapter S and differ from a C corporation in how they handle earnings and taxes. The corporation’s income is distributed among shareholders in proportion to their ownership and reported on their individual tax returns. The election to become an S corporation allows a business entity to be taxed like a partnership, while maintaining its corporate status. Each shareholder receives a Schedule K-1 showing their ratable share of income, deductions, and adjustments.
When You’d Use Form 1120-S for 2021 (Late or Amended Filing)
You would file a late or amended IRS Form 1120-S (2021) if the corporation missed the March 15, 2022, filing date or if adjustments are needed to correct errors. A corporation may file late if errors occur in the accumulated adjustments account, stock ownership, or K-1 allocations. Filing also applies if the corporation files after incorporation or changes from a C corporation to an S corporation.
The IRS may assess a penalty of $210 per shareholder per month, up to 12 months, even if no income tax is due. The corporation may request penalty relief if it can show reasonable cause. Penalty payments can be made through Form 843. Adjustments often affect shareholder basis, net negative adjustment calculations, and accumulated adjustments. Corporations should be aware that filing corrections may also impact state filings and shareholder refunds.
Key Rules Specific to 2021
- Schedules K-2 and K-3: These schedules replaced certain international reporting sections of Schedule K and Schedule K-1 for the 2021 tax year.
- PPP Loan Forgiveness: Tax-exempt PPP forgiveness income must still be reported because it affects the accumulated adjustments account, shareholder basis, and corporate earnings.
- 100% Meal Deduction: Business meals were fully deductible for 2021 and 2022 under pandemic relief.
- Late Filing Penalty: The penalty is $210 per shareholder per month, up to 12 months, even if the corporation had no income.
Corporations must file electronically through approved financial institutions or mail paper forms with all required details and signatures. The IRS encourages businesses to file electronically to reduce processing delays.
Step-by-Step (High Level)
- Gather Records: Collect all income, expenses, and financial statements for the corporation’s taxable year. Use Form 4506-T to request IRS transcripts if necessary.
- Complete the Correct Form: Use the 2021 version of Form 1120-S and confirm the corporation files using the proper date and identification number.
- Prepare the Schedules: Include Schedule K, Schedule K-1s, Schedule M-2, and Schedules K-2 and K-3. Add details for property sales, assets constituting stock redemptions, and distributions.
- Attach Supporting Forms: Include Schedule D for sales of stock or assets, Form 4797 for property transactions, and Form 1125-A for cost of goods sold.
- File and Distribute: Electronically file with the IRS or mail the return. Provide each shareholder with a K-1 reflecting their allocated proportion of income and deductions.
- Maintain Complete Records: Keep copies of returns, adjustments, and supporting documents for a minimum of three years. Retain statements on corporate separations, incorporation details, and asset valuation.
Common Mistakes and How to Avoid Them
- Basis Errors: Track the accumulated adjustments account and retained earnings carefully to ensure taxable income and shareholder equity are reported accurately.
- Reasonable Compensation: Pay shareholder-employees reasonable wages before issuing distributions to prevent penalties and additional income tax.
- Incorrect Forms: Use the correct tax year version and include all required schedules, such as K-2 and K-3, to avoid rejection or processing delays.
- International Reporting Errors: Report all foreign income, assets, and payments accurately to comply with IRS requirements and prevent penalties.
- Missing Schedules: Include Schedule M-3 and all supporting documentation to report adjustments, deductions, and corporate assets clearly.
- Distribution Issues: Classify redemption distributions and property transfers correctly to maintain accurate shareholder equity and account balances.
Every corporation should review its payments, income, and expenses before filing to ensure compliance with federal taxes.
What Happens After You File
After you file, the IRS processes the return within three to six months. The corporation may receive a notice if discrepancies occur. The IRS can assess penalties or interest for late filings or unpaid amounts. If the corporation makes a net negative adjustment or other correction, it may affect shareholders’ future filings.
Payment arrangements can be made through Form 9465. Shareholders may need to amend personal returns if income, deductions, or ratable shares change. Ineligible entities, such as disregarded entities or corporations with more than one class of stock, should re-evaluate their corporate status. Corporations must ensure earnings and assets are allocated in the following order: income, deductions, and distributions. Always check for the locked padlock icon on official IRS pages before submitting any tax payment or additional information online.
FAQs
How do I file IRS Form 1120-S (2021) for my S corporation’s tax year?
You must file IRS Form 1120-S (2021) to report your S corporation’s income, deductions, and expenses for the 2021 tax year. The corporation should electronically file or mail the return. Each shareholder’s income, ratable share, and accumulated adjustments must be included to ensure the tax return reflects accurate corporate details.
How does the accumulated adjustments account affect my S corporation tax return?
The accumulated adjustments account records profits and losses that have already been taxed to shareholders. This account prevents double taxation when distributions are made. A positive balance increases shareholder basis, while a negative adjustment reduces it. Reviewing this account annually ensures compliance and accuracy in reporting profits and distributions.
Can a disregarded entity file an S corporation tax return for 2021?
A disregarded entity cannot file IRS Form 1120-S (2021) directly with the IRS. It must elect to be treated as a corporation before it can elect S corporation status. Once elected, the entity must follow the rules of Subchapter C and S. It must meet all eligibility requirements, including having only one class of stock and qualifying shareholders.
How does income tax apply to an S corporation for the 2021 tax year?
An S corporation generally does not pay federal income tax at the corporate level. Instead, shareholders report income, deductions, and credits on their individual tax returns. Certain types of income, such as built-in gains, may still be subject to federal taxes. Corporations must pay any applicable tax and ensure proper allocation of earnings.
What is the page last reviewed or updated date for 2021 S corporation filings?
The 2021 S corporation tax return was originally due March 15, 2022. Amended returns are accepted within three years of the original filing date. Always verify the page last reviewed or updated on IRS.gov before filing. Check for the locked padlock icon on the IRS website to confirm security before submitting payment or account information.
