What Form 1120-S Is For

Form 1120-S is the annual federal tax return that every S corporation must file with the Internal Revenue Service. An S corporation is a special type of business structure that allows income, losses, deductions, and credits to "pass through" directly to shareholders, avoiding the double taxation that regular corporations face. Think of it like this: the S corporation itself typically doesn't pay federal income tax—instead, the shareholders report their share of the company's income on their personal tax returns, even if they didn't actually receive the money as a distribution.

To be eligible to file Form 1120-S, your corporation must have already made a valid S corporation election by filing Form 2553 with the IRS and received acceptance confirmation. The form collects detailed information about your business's income, expenses, gains, losses, deductions, and credits for the tax year. More importantly, it generates Schedule K-1 forms for each shareholder, which break down each person's share of the business results they need to report on their individual returns. IRS Form 1120-S Instructions

When You’d Use It (Including Late and Amended Returns)

Regular Filing: Every S corporation must file Form 1120-S annually by the 15th day of the 3rd month after the tax year ends. For most businesses operating on a calendar year (January–December), that means the deadline is March 15, 2013 for the 2012 tax year. Even if your corporation had no income or activity during the year, you still must file the return. IRS Form 1120-S Instructions

Extensions: If you need more time, you can file Form 7004 to automatically extend your filing deadline by six months (to September 15 for calendar-year filers). However, you must submit the extension request by the original March 15 deadline. Keep in mind that an extension to file is not an extension to pay any tax due—you must still pay estimated taxes by the original deadline to avoid penalties and interest. IRS Form 1120-S Instructions

Late Filing: If you miss the deadline (even with an extension), you should file as soon as possible. The IRS will assess penalties, but filing late is always better than not filing at all. The penalty structure depends on whether the corporation owes tax and can be substantial (see Common Mistakes section below).

Amended Returns: Mistakes happen. If you discover errors after filing—whether from mathematical mistakes, omitted income, incorrect deductions, or new information—you must file an amended Form 1120-S. To do this, prepare a new Form 1120-S with the corrected information and check box H(4) on page 1 to indicate it's an amended return. Attach a detailed statement explaining each change, the line number affected, the corrected amount, and the reason for the change. If the corrections affect any shareholder's Schedule K-1, you must also issue amended K-1 forms to those shareholders and check the "Amended K-1" box at the top. IRS Form 1120-S Instructions

Key Rules for 2012

Several important requirements applied specifically to the 2012 tax year:

Electronic Payment Requirement: All S corporations were required to make federal tax deposits electronically using the Electronic Federal Tax Payment System (EFTPS) or through a financial institution. Paper checks were no longer acceptable for employment taxes, excise taxes, and corporate income tax deposits. IRS Form 1120-S Instructions

Mandatory E-Filing: Corporations with $10 million or more in total assets that file at least 250 returns annually were required to file Form 1120-S electronically, even if they qualified for certain paper-filing exceptions. IRS Form 1120-S Instructions

Food Inventory Contributions: For 2012, S corporations could claim an increased deduction for charitable contributions of food inventory to qualifying organizations—a temporary provision extended through 2013. This benefited restaurants, grocery stores, and food producers donating to food banks.

Form 8949 Requirement: A significant change in 2012 required corporations to report many capital asset transactions on the new Form 8949 (Sales and Other Dispositions of Capital Assets) before transferring totals to Schedule D. This added complexity to reporting stock sales and other investment dispositions.

Three-Year Recordkeeping Rule: S corporations must maintain records supporting the return for at least three years from the date each shareholder's return is due or filed (whichever is later). For property basis documentation, keep records indefinitely until the property is disposed of. IRS Form 1120-S Instructions

Step-by-Step Filing Process (High Level)

Step 1: Gather Your Documentation

Collect all financial records including income statements, expense receipts, bank statements, payroll records, depreciation schedules, and records of distributions to shareholders. You'll need your books balanced and reconciled before starting the return.

Step 2: Complete the Core Form

Fill out Form 1120-S page 1 with basic business information (name, address, EIN, business code) and calculate ordinary business income by reporting gross receipts, cost of goods sold, and deductible expenses. Complete Form 1125-A if you have inventory.

Step 3: Prepare Schedules K and K-1

Schedule K summarizes all income, deductions, and credits that must be separately reported to shareholders (like rental income, capital gains, charitable contributions, and Section 179 deductions). Then prepare individual Schedule K-1 forms for each shareholder showing their percentage share of each item. This is critical—shareholders need these to complete their personal returns.

Step 4: Complete Balance Sheet and Reconciliation Schedules

Fill out Schedule L (balance sheet), Schedule M-1 (reconciling book income to tax income), and Schedule M-2 (analyzing accumulated adjustments account and other equity accounts). Schedule B provides additional information about the corporation's activities and ownership.

Step 5: Attach Supporting Forms

Assemble required forms in the specified order: Schedule N (if applicable), Form 8825 (rental real estate), Form 8050 (direct deposit), Form 1125-A (cost of goods sold), Form 4136 (fuel tax credits), and any other applicable schedules in alphabetical order, then additional forms in numerical order. IRS Form 1120-S Instructions

Step 6: Sign and Date

An authorized corporate officer (president, vice president, treasurer, chief accounting officer, or designated tax officer) must sign and date the return. If you use a paid preparer, they must also complete and sign the "Paid Preparer Use Only" section.

Step 7: File at the Correct IRS Address

Mail your return to the designated IRS Service Center based on your principal business location and total asset size. For most small businesses with under $10 million in assets, that's either Cincinnati, OH or Ogden, UT depending on your state. IRS Form 1120-S Instructions

Step 8: Distribute Shareholder Schedules

Provide each shareholder their Schedule K-1 by the filing deadline (March 15 or extended deadline). Shareholders need these to complete their personal tax returns.

Common Mistakes and How to Avoid Them

Mistake #1: Filing Before S Election Takes Effect

Don't file Form 1120-S for any year before the IRS officially accepts your S corporation election. If you filed Form 2553 but haven't received confirmation within 2-5 months, call the IRS at 1-800-829-4933 to verify status. IRS Form 1120-S Instructions

Mistake #2: Leaving Entry Spaces Blank

The IRS explicitly warns against writing "See Attached" or "Available Upon Request" in standard entry fields. You must complete every applicable entry space directly on the form. If you need more room, attach separate schedules but always show totals on the printed form. IRS Form 1120-S Instructions

Mistake #3: Mailing to the Wrong IRS Address

Filing addresses vary based on your business location and total assets. Using the wrong address can delay processing by months. Double-check the address chart in the instructions before mailing.

Mistake #4: Missing or Incorrect Schedule K-1s

Each shareholder must receive an accurate, timely Schedule K-1. Late or incorrect K-1s trigger a $100 penalty per occurrence ($250 if intentional). Ensure all K-1s add up correctly to Schedule K totals and distribute them by the filing deadline. IRS Form 1120-S Instructions

Mistake #5: Improper Document Assembly

The IRS requires forms and schedules attached in a specific order. Following the prescribed sequence prevents processing errors. Put all attachments behind page 5 in this order: Schedule N, Form 8825, Form 8050, Form 1125-A, Form 4136, Form 8941, additional schedules alphabetically, then additional forms numerically. IRS Form 1120-S Instructions

Mistake #6: Confusing Extension to File with Extension to Pay

Form 7004 extends your filing deadline, not your payment deadline. Any tax due must still be paid by the original March 15 deadline or you'll incur late payment penalties (0.5% per month) plus interest. IRS Form 1120-S Instructions

What Happens After You File

Immediate Processing: The IRS receives and processes your return, typically within several weeks for paper returns or faster for e-filed returns. The processing involves data entry, mathematical verification, and matching Schedule K totals with individual K-1 forms.

Shareholder Reporting: Each shareholder must report their Schedule K-1 items on their personal Form 1040, even if the S corporation didn't distribute cash. This pass-through taxation is the defining feature of S corporations—shareholders pay tax on their allocated income whether or not they actually received it.

IRS Contact Authorization: If you checked the "Yes" box in the paid preparer authorization section, the IRS may contact your preparer to resolve questions about the return. This authorization automatically expires on the due date of your 2013 return. IRS Form 1120-S Instructions

Penalty Assessments: If the IRS determines your return was late or incomplete, you'll receive a notice of penalties assessed. Don't panic—you can respond with an explanation showing "reasonable cause" for the delay or error. The IRS will review and potentially waive penalties if you have a valid reason. IRS Form 1120-S Instructions

Examination Selection: A small percentage of returns are selected for examination (audit). The IRS has three years from the filing date to examine a return (six years if you understated income by 25% or more). Maintain all supporting documentation during this period.

State Reporting: Changes to your federal return may affect state tax obligations. Most states require you to report federal amendments or audit results within a specific timeframe. Check with your state tax agency about notification requirements.

Recordkeeping Obligations: Keep your filed return, all supporting documents, and copies of issued K-1 forms for at least three years. This protects you if shareholders have questions or if the IRS contacts you. IRS Form 1120-S Instructions

Taxpayer Advocate Service: If you encounter unresolved problems with the IRS, the Taxpayer Advocate Service (TAS) provides free assistance. Call their toll-free intake line at 1-877-777-4778 to determine eligibility. TAS helps ensure fair treatment and can intervene in complex cases. IRS Form 1120-S Instructions

FAQs

Q1: Do I need to file Form 1120-S if my S corporation had no income or activity in 2012?

Yes. All S corporations must file Form 1120-S annually regardless of income level or business activity. Even a dormant S corporation with zero income must file to maintain its S election status. Failure to file can result in automatic termination of your S election. IRS Form 1120-S Instructions

Q2: What penalties will I face if I file Form 1120-S late?

For returns where no tax is due, the penalty is $195 per month (or part of a month, up to 12 months) multiplied by the number of shareholders. If tax is due, add 5% of the unpaid tax per month (up to 25% maximum). Returns over 60 days late face a minimum penalty of the lesser of tax due or $135. Additionally, shareholders receive late K-1s, which may trigger a separate $100 penalty per K-1. IRS Form 1120-S Instructions

Q3: Can I e-file Form 1120-S for 2012, or must I file on paper?

E-filing is available and encouraged for most S corporations. However, it's mandatory only for corporations with $10 million+ in assets that file 250+ returns annually. If you're not required to e-file, you can choose paper filing. E-filing typically results in faster processing and confirmation of acceptance. IRS Form 1120-S Instructions

Q4: How long do I have to file an amended Form 1120-S if I discover an error?

Generally, you should file an amended return as soon as you discover an error. The IRS allows shareholders three years from the date they filed their original personal return (or the due date, whichever is later) to claim refunds resulting from S corporation amendments. While there's no strict deadline for filing the corporate amendment itself, prompt filing helps shareholders make timely personal amendments. IRS Form 1120-S Instructions

Q5: What's the difference between Schedule K and Schedule K-1?

Schedule K is a summary schedule attached to Form 1120-S that totals all income, deductions, and credits that must be separately reported to shareholders. Schedule K-1 is the individual form each shareholder receives showing their specific percentage share of each Schedule K item. Think of Schedule K as the corporate summary and K-1 as each owner's personalized share. The sum of all K-1s must equal Schedule K totals.

Q6: Do shareholders pay tax on S corporation income even if no distributions were made?

Yes. This is crucial to understand about S corporations. Shareholders are taxed on their allocated share of income (reported on Schedule K-1) regardless of whether the corporation actually distributed cash to them. This "phantom income" situation means you might owe tax on income you haven't received. Conversely, actual distributions are generally tax-free to the extent of the shareholder's stock basis.

Q7: How do I know which IRS Service Center to mail my Form 1120-S to?

The correct address depends on two factors: (1) your principal business office location, and (2) your total assets. For businesses with under $10 million in assets not filing Schedule M-3, most Eastern states mail to Cincinnati, OH, while Western states mail to Ogden, UT. Businesses with $10 million+ in assets (or filing Schedule M-3) all mail to Ogden, UT. Foreign corporations also mail to Ogden. Consult the address chart in the official instructions to confirm your specific address. IRS Form 1120-S Instructions

Note: This summary provides general guidance based on 2012 tax law. Tax regulations change frequently, and individual circumstances vary. Always consult the official IRS Form 1120-S instructions and consider seeking assistance from a qualified tax professional for your specific situation.

Source: 2012 Instructions for Form 1120-S, IRS.gov