What the Form Is For
Form 1120-S (2014) is the income tax return S corporations must file with the Internal Revenue Service. It reports each tax year's business income, deductions, credits, and capital gains. The form is designed for small business owners who have elected S corporation status, allowing profits and losses to pass directly to individual shareholders. This structure avoids double taxation because the corporation does not pay income tax at the corporate level. Instead, each shareholder reports their share of the corporation’s income on their personal tax returns.
When You’d Use Form 1120-S (2014)
S corporations and LLCs taxed as S corporations must file Form 1120-S for the 2014 tax year if they had business income, losses, or deductions to report. The due date for calendar year filers was March 16, 2015, since the regular March 15 date fell on a Sunday. The form covers all income and expenses from January 1 through December 31, 2014. If you could not file by the original due date, you could request a six-month extension using Form 7004. Amended filings are also required when errors affect the corporation’s income, capital gains, or shareholder allocations.
Key Rules or Details for 2014
- Eligibility Requirements: Only corporations with 100 or fewer individual shareholders, one class of stock, and approved S corp status may file Form 1120-S.
- Tax Year and Fiscal Year Rules: Most S corporations must use a calendar year unless they obtain IRS approval for a fiscal year.
- Accounting Method: Depending on their size and operations, businesses may use cash or accrual accounting.
- Estimated Tax Payments: S corporations must make quarterly tax payments if they owe more than $500 in certain business taxes.
- E-Filing Requirement: Corporations with $10 million or more in total assets and at least 250 tax returns must e-file the returns.
- Schedule K and K-1: These information schedules report each shareholder’s portion of income, deductions, and credits.
- Penalties: Failing to file Form 1120-S on time results in monthly penalties of $195 per shareholder, up to 12 months.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Complete Basic Information
Enter the corporation’s name, address, Employer Identification Number, and business activity code. Check boxes for amended or final returns if applicable.
Step 2: Report Income
List all gross receipts or sales and subtract the cost of goods sold to determine gross profit. Include other income, such as interest, net gains from asset sales, or rental income.
Step 3: Enter Deductions
Record eligible expenses such as officer compensation, salaries, rent, taxes, and bad debts. These deductions reduce the corporation’s profits and lower shareholders' tax liability.
Step 4: Calculate Ordinary Business Income
Subtract total deductions from total income to determine ordinary business income or loss. This figure determines each shareholder’s share of profits for personal tax purposes.
Step 5: Prepare Schedule K and K-1
Use Schedule K to summarize total corporate income and deductions. Provide each shareholder with Schedule K-1 showing their share of income, credits, and other items.
Step 6: Complete the Balance Sheet
Schedule L is the corporation’s balance sheet, detailing its assets, liabilities, and totals for the accumulated adjustments account. Accuracy here is vital for IRS comparison.
Step 7: File Form 1120-S
Sign the completed form by the due date. If the date falls on a weekend or holiday, file on the next business day. Electronic filing helps save time and ensures accuracy.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Missing the Original Due Date: Always confirm when the date falls to prevent penalties. Set reminders and file early, or request a six-month extension.
- Incorrect K-1 Allocations: Verify that each shareholder’s share of income matches ownership percentages. Mismatched K-1 data can trigger IRS notices.
- Incomplete Balance Sheet: Double-check total assets and liabilities for accuracy before submission. Errors may lead to IRS processing delays.
- Ignoring Bad Debts: Only deduct uncollectible amounts that meet IRS requirements. Keep written records of all efforts to collect unpaid accounts.
- Mixing Personal and Business Expenses: Keep business accounts separate to avoid audit issues and disallowed deductions.
- Neglecting State Filing Requirements: Some states, such as South Carolina, West Virginia, and Rhode Island, require separate S corporation tax returns.
- Failing to Maintain the Accumulated Adjustments Account: Track shareholder basis and accumulated adjustments to avoid misreporting future distributions.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
Once you file Form 1120-S, the Internal Revenue Service processes your tax return and matches it with each shareholder’s personal filing. The IRS verifies that amounts from Schedule K-1 are properly reported on individual tax returns. If the corporation overpaid estimated tax payments, it can request a refund or apply the amount toward next year’s taxes. The IRS may send a notice or request an amended filing if errors are found. Always keep copies of all tax returns, balance sheets, and supporting documents for at least three years.
Frequently Asked Questions
What is IRS Form 1120-S used for in an income tax return?
S corporations use Form 1120-S to report business income, deductions, and credits to the IRS. The form ensures that profits flow to shareholders for personal tax reporting.
When is the due date to file Form 1120-S for 2014?
The due date for the 2014 tax year was March 16, 2015, because the regular March 15 date fell on a Sunday. Late filers needed Form 7004.
Can a corporation file Form 1120-S without meeting filing requirements?
Only corporations with approved corporation status and proper shareholder eligibility may file this form. Others must file Form 1120 for C corporations.
How do capital gains affect a corporation’s income tax return?
Capital gains from asset sales are reported on Form 1120-S and passed through to shareholders. Each shareholder includes a portion of their personal income tax return.
How are bad debts handled in Form 1120-S filings?
Bad debts that become worthless during the tax year can be deducted as business expenses. Documentation of collection attempts must be kept for IRS review.
What information schedule is required with Form 1120-S?
Schedules K and K-1 are mandatory information schedules summarizing corporate income and shareholder allocations. Accurate completion ensures compliance with IRS standards.
