What Form 1120-S Is For

Form 1120-S is the annual income tax return specifically designed for S Corporations—a special type of corporation that has elected to pass corporate income, losses, deductions, and credits directly through to their shareholders for federal tax purposes. Unlike regular C Corporations that pay taxes at the corporate level, S Corporations generally avoid double taxation by reporting financial information on Form 1120-S while individual shareholders report their share of income and losses on their personal tax returns via Schedule K-1.

If your business filed Form 2553 (Election by a Small Business Corporation) and received IRS acceptance to be treated as an S Corporation, you must file Form 1120-S to report all business income, gains, losses, deductions, and credits for the tax year. The form captures the company's gross receipts, cost of goods sold, operating expenses, and net income or loss, which then flows through proportionally to each shareholder based on their ownership percentage. Even S Corporations with no income or activity for the year must file this return to maintain their S Corporation status IRS.gov.

When You’d Use Form 1120-S (Late/Amended)

Regular Filing Deadline

For calendar year S Corporations (those with a tax year ending December 31, 2011), Form 1120-S for 2011 was due by March 15, 2012—the 15th day of the 3rd month after the tax year ended. For fiscal year corporations, the deadline is similarly the 15th day of the 3rd month after their fiscal year ends. If the deadline falls on a weekend or legal holiday, you can file on the next business day.

Extensions

If you couldn't meet the deadline, you could request an automatic 6-month extension by filing Form 7004 (Application for Automatic Extension of Time to File) by the original March 15 due date. This extension gave corporations until September 17, 2012, to file, though it's important to understand that an extension to file is not an extension to pay—any taxes owed were still due by the original March 15 deadline.

Late Filing

If you missed the deadline entirely without requesting an extension, you'd still need to file Form 1120-S as soon as possible. The IRS imposes penalties for late filing: $195 per month (or part of a month, up to 12 months) multiplied by the number of shareholders during the tax year. For example, an S Corporation with three shareholders filing two months late would face a penalty of $1,170 ($195 × 2 months × 3 shareholders).

Amended Returns

If you discover errors after filing your original 2011 Form 1120-S, you must file an amended return. Check box H(4) labeled "Amended return" on page 1, attach a detailed statement explaining each correction, and file the amended form at the same IRS service center. If any shareholder's Schedule K-1 information changed, you must also prepare and distribute amended Schedule K-1 forms to those affected shareholders, checking the "Amended K-1" box at the top IRS.gov.

Key Rules or Details for 2011

S Corporation Eligibility

To maintain S Corporation status in 2011, your business had to meet specific requirements: operate as a domestic corporation, have no more than 100 shareholders, have only allowable shareholders (individuals, certain trusts, and estates—not partnerships or corporations), issue only one class of stock, and not be an ineligible corporation type (such as certain financial institutions or insurance companies).

Merchant Card Payment Reporting

For 2011, the IRS deferred the requirement to separately report merchant card and third-party network payments from Form 1099-K. Instead, corporations simply reported gross receipts from all business operations on lines 1b through 1e without special designation on line 1a.

Cost of Goods Sold

Beginning in 2011, cost of goods sold was calculated on Form 1125-A (Cost of Goods Sold), a separate form rather than Schedule A directly on Form 1120-S. This form was then attached to the main return.

Passive Activity Limitations

While these rules don't directly affect the corporation, S Corporations had to carefully report income and losses from different types of activities separately. This allows shareholders to properly apply passive activity loss limitations on their personal returns, which restrict using passive losses to offset wages, salaries, or portfolio income.

Built-in Gains Tax

If your S Corporation was previously a C Corporation and had unrealized appreciation in assets at the time of conversion, you could be subject to the built-in gains tax if you sold those assets within 10 years of the S election. In 2011, this was a corporate-level tax reported on line 22a.

Excess Net Passive Income Tax

S Corporations with accumulated earnings and profits (from previous C Corporation years) that derived more than 25% of gross receipts from passive investment income could owe a corporate-level tax on excess net passive income, also reported on line 22a IRS.gov.

Step-by-Step (High Level)

1. Basic Information (Page 1, Top Section)

Enter the corporation's legal name exactly as it appears on the S election, employer identification number (EIN), business activity code, principal business address, incorporation date, and total assets at year-end. Indicate the number of shareholders during the year and check any applicable boxes (name change, address change, final return, amended return, or S election termination).

2. Income Section (Lines 1-6)

Report all business income including gross receipts or sales (line 1), cost of goods sold from Form 1125-A (line 2), calculate gross profit (line 3), and add any other income such as capital gains from Form 4797 (line 4) or miscellaneous income (line 5). Total all income on line 6.

3. Deductions Section (Lines 7-21)

List all ordinary and necessary business expenses including compensation of officers, salaries and wages, repairs, bad debts, rent, taxes, interest, depreciation (from Form 4562), advertising, pension plans, employee benefits, and other deductions. Subtract total deductions (line 20) from total income (line 6) to arrive at ordinary business income or loss on line 21—this amount flows through to shareholders.

4. Tax and Payments (Lines 22-27)

Most S Corporations don't pay federal income tax, but if your corporation owes the built-in gains tax, excess net passive income tax, LIFO recapture tax, or investment credit recapture tax, report these on lines 22a-22c. Record any estimated tax payments made during the year and calculate whether you owe additional tax or will receive a refund.

5. Schedule K (Page 2-3)

This crucial schedule breaks down each type of income, deduction, and credit that flows through to shareholders: rental income, interest, dividends, capital gains, Section 1231 gains, charitable contributions, Section 179 deductions, tax credits, foreign taxes, and AMT items. Each line item is reported separately because shareholders may treat them differently on personal returns.

6. Schedules L, M-1, and M-2 (Page 4)

Schedule L presents the corporation's balance sheet at the beginning and end of the tax year. Schedule M-1 reconciles book income with tax return income, explaining differences like tax-exempt interest or non-deductible expenses. Schedule M-2 analyzes the Accumulated Adjustments Account (AAA), tracking the corporation's undistributed income.

7. Schedule K-1

Prepare a separate Schedule K-1 for each shareholder showing their proportionate share of each Schedule K line item. Provide copies to shareholders by March 15, 2012, so they can file their personal tax returns IRS.gov.

Common Mistakes and How to Avoid Them

Mixing Business and Personal Expenses

One of the most frequent errors is reporting personal expenses as business deductions. The IRS requires that all deductions be ordinary (common in your industry) and necessary (helpful and appropriate for your business). Keep meticulous records separating personal from business expenses, and never claim personal vehicle use, home expenses (unless documented home office), or family meals as business deductions unless properly substantiated.

Incorrect Officer Compensation Reporting

S Corporation shareholder-employees who perform services must receive reasonable compensation reported on line 7 and Form W-2, with proper payroll taxes withheld. Some owners try to minimize payroll taxes by taking only distributions without salary—this is a red flag for IRS audits. Establish reasonable compensation based on industry standards, duties performed, and time invested.

Failing to Maintain Adequate Records

The IRS can audit your 2011 return until 2015 (three years after filing), longer if substantial errors exist. Maintain complete records including receipts, bank statements, canceled checks, invoices, mileage logs, and documentation for all claimed deductions. Without proper records, the IRS can disallow deductions entirely.

Missing Schedule K-1 Deadline

Shareholders need their Schedule K-1 by March 15, 2012, to file their personal returns on time. Late or incorrect K-1s can result in $100 penalties per form and frustrated shareholders. Prepare K-1s early, review them carefully for accuracy, and distribute them promptly.

Passive Activity Reporting Errors

Failing to properly segregate rental activities, portfolio income, and trade or business activities on Schedule K can create problems for shareholders applying passive activity loss limitations. Use attachments to Schedule K and K-1 to clearly identify each separate activity when your corporation operates multiple businesses or rental properties.

Overlooking the Built-in Gains Tax

Former C Corporations must track assets held at conversion and recognize built-in gains tax when selling appreciated assets within the recognition period. Maintain detailed records of asset values at the S election date to properly calculate any potential built-in gains tax liability IRS.gov.

What Happens After You File

Processing Timeline

After filing Form 1120-S, the IRS typically processes the return within several weeks to a few months. If you requested a refund via direct deposit (Form 8050), funds usually arrive faster than paper checks mailed to the corporation's address. The IRS may contact you if they need additional information or identify discrepancies.

Shareholder Reporting

Shareholders use the Schedule K-1 information to complete their personal Form 1040 tax returns. Pass-through income or loss from line 1 of Schedule K-1 generally appears on Schedule E (Supplemental Income and Loss), while separately stated items like capital gains, dividends, and credits flow to their respective locations on the individual return. Shareholders must report their K-1 items even if they didn't receive actual cash distributions from the corporation.

Maintaining Corporate Records

After filing, retain your complete 2011 tax return, all supporting schedules, receipts, bank statements, and other documentation for at least three years from the filing date. These records support your tax positions if the IRS selects your return for examination. Keep records related to asset basis and capital improvements indefinitely, as they affect future gain or loss calculations when assets are sold.

S Corporation Election Maintenance

Successfully filing Form 1120-S helps maintain your S Corporation status, which continues indefinitely unless terminated. Termination can occur if the corporation fails to meet eligibility requirements (exceeds 100 shareholders, issues a second class of stock, admits an ineligible shareholder), voluntarily revokes the election, or has excess passive income for three consecutive years while holding accumulated earnings and profits.

Potential IRS Contact

The IRS might send notices requesting clarification on specific items, proposing adjustments, or notifying you of math errors. Respond promptly to all IRS correspondence within the stated deadline, usually 30 days. If you disagree with proposed changes, you have appeal rights—don't ignore IRS notices, as they can escalate to enforced collection actions.

State Tax Obligations

Filing your federal Form 1120-S doesn't complete your tax obligations. Most states require separate S Corporation returns or information filings. Some states don't recognize S Corporation status and tax these entities as regular corporations. Check your state's specific requirements and deadlines, which may differ from federal rules IRS.gov.

FAQs

Q: Do I have to file Form 1120-S if my S Corporation had no income or expenses in 2011?

A: Yes. All S Corporations must file Form 1120-S annually regardless of activity level to maintain their S election status. File the return with zeros reported in the income and expense sections, but complete all required identification information and schedules. Failure to file can jeopardize your S Corporation election.

Q: What's the difference between Form 1120-S and Form 1120?

A: Form 1120 is for regular C Corporations that pay corporate-level income tax and file annual returns showing taxes owed. Form 1120-S is exclusively for S Corporations, which generally don't pay federal income tax at the corporate level—instead, income and losses pass through to shareholders who report them on personal returns. Don't confuse these forms; using the wrong one can create significant tax complications.

Q: Can I e-file Form 1120-S for 2011?

A: Yes. The IRS accepted electronic filing for Form 1120-S in 2011, including related schedules, forms, attachments, and extensions. E-filing offers faster processing, confirmation of receipt, and reduced errors compared to paper filing. Corporations with $10 million or more in total assets filing at least 250 returns annually were required to e-file in 2011, though others could voluntarily choose electronic filing.

Q: How long should I keep my 2011 Form 1120-S and supporting records?

A: Keep your complete 2011 return and all supporting documentation for at least three years from April 15, 2012 (when shareholders' returns were due) or from your actual filing date if later. The IRS generally has three years to audit returns, though this extends to six years if you substantially understated income (by 25% or more) or indefinitely if you never filed or filed fraudulently. Retain records related to asset basis, depreciation, and capital transactions indefinitely.

Q: What happens if I discover an error after filing my 2011 Form 1120-S?

A: File an amended Form 1120-S as soon as you discover the mistake. Check box H(4) for "Amended return," correct the erroneous information, and attach a detailed explanation of changes. If shareholder K-1 information changed, prepare and distribute amended Schedule K-1 forms marked "Amended K-1" to affected shareholders so they can file amended personal returns (Form 1040X) if necessary. The sooner you correct errors voluntarily, the better—it typically results in reduced penalties compared to IRS-discovered mistakes.

Q: My corporation missed the March 15, 2012 deadline and didn't file an extension. What should I do?

A: File your 2011 Form 1120-S immediately, even if significantly late. Include a reasonable cause statement explaining the delay if you have legitimate reasons (serious illness, natural disaster, unavoidable absence, etc.). While late filing penalties apply ($195 per month per shareholder up to 12 months), voluntarily filing late shows good faith and stops penalties from accumulating further. Don't wait—the longer you delay, the higher the penalties and potential consequences for your S Corporation election.

Q: Where can I find official instructions and forms for 2011 Form 1120-S?

A: Download the official 2011 Form 1120-S and complete instructions from the IRS website at IRS.gov (form) and IRS.gov (instructions). These authoritative sources provide detailed line-by-line guidance, examples, and worksheets. You can also call the IRS Business and Specialty Tax Line at 1-800-829-4933 for assistance or contact the Taxpayer Advocate Service at 1-877-777-4778 if experiencing difficulties resolving tax issues through normal channels.

Sources: All information in this guide comes directly from official IRS publications for tax year 2011, including Form 1120-S, Instructions for Form 1120-S, and related IRS guidance available at IRS.gov.