Form 1120-S (2015): Tax-Year-Specific Checklist
Form 1120-S (2015) introduces mandatory Affordable Care Act employer health coverage reporting for corporations with 50 or more full-time employees, requiring the attachment of Forms 1094-C and 1095-C to demonstrate compliance with employer shared responsibility provisions. The $250,000 gross receipts and asset threshold determines whether Schedules L and M-1 must be completed, providing smaller S corporations with a reduced reporting burden.
Suppose a corporation has passive investment income that exceeds 25 percent of its gross receipts. In that case, it will face an excess net passive income tax if it has leftover earnings from previous years as a C corporation. This penalty tax is designed to prevent S corporations from primarily acting as investment holding companies.
Year-Specific Programs Applying to 2015
Corporations with 50 or more full-time employees, including full-time equivalent employees calculated under aggregation rules, must report health coverage offers and enrollment under Internal Revenue Code sections 6055 and 6056 using Forms 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) and 1095-C (Employer-Provided Health Insurance Offer and Coverage).
This information returns a document whether the corporation offered minimum essential coverage to substantially all full-time employees and whether the coverage met minimum value and affordability standards, enabling the IRS to administer premium tax credit eligibility and employer shared responsibility payment assessments.
Estimated tax payments for corporate-level taxes of $500 or more must be made on April 18, June 15, September 15, and December 15 for calendar-year filers in 2016, representing estimated payments for the 2015 tax year. These quarterly installments apply to built-in gains tax, excess net passive income tax, and investment credit recapture tax, which represent the limited circumstances where S corporations are required to pay entity-level federal income tax, rather than passing all tax liability through to shareholders.
Comprehensive Ten-Step Filing Checklist
Step 1: Verify S Election Status
Confirm that Form 2553 (Election by a Small Business Corporation) was timely filed with the IRS and that the corporation received written acceptance before filing Form 1120-S for tax year 2015. The election must be filed by the 15th day of the third month of the tax year for which the election is to take effect, or at any time during the preceding tax year. Form 1120-S cannot be filed unless the corporation holds a valid, accepted S corporation status. Corporations without approved elections must file Form 1120 (U.S. Corporation Income Tax Return) as C corporations, subject to double taxation.
Step 2: Determine Schedule L and M-1 Filing Requirement
Calculate whether total receipts for the tax year AND total assets at year-end both fall below $250,000. If both thresholds are below $250,000, Schedules L (Balance Sheets per Books) and M-1 (Reconciliation of Income per Books With Income per Return) become optional and may be omitted from the filing. If either total receipts for the year or total assets at year-end equal or exceed $250,000, both schedules must be completed and attached to the return. This bifurcated approach reduces compliance burden for the smallest S corporations while maintaining financial transparency for larger entities.
Step 3: Gather Comprehensive Income Documentation
Collect all information returns received during the tax year including Form 1099-MISC (Miscellaneous Income) reporting nonemployee compensation and other miscellaneous payments, Form 1099-INT (Interest Income) documenting interest earned on business bank accounts and investments, Form 1099-DIV (Dividends and Distributions) showing ordinary and qualified dividends received, Form 1099-B (Proceeds from Broker and Barter Exchange Transactions) reporting securities sales and redemptions, and Form 1099-OID (Original Issue Discount) documenting original issue discount income on debt instruments.
Obtain Schedule K-1 forms received from partnerships, other S corporations, estates, or trusts in which the corporation holds ownership interests, as these pass-through items must be reported on the corporation’s return. Compile rental income statements documenting gross rents received and rental expenses paid, royalty statements showing royalty income from intellectual property or natural resources, and Form 4797 (Sales of Business Property) documentation for all sales or exchanges of property used in the trade or business.
Step 4: Calculate Cost of Goods Sold
Suppose the corporation maintains inventory or engages in sales of goods requiring inventory tracking. Complete Form 1125-A (Cost of Goods Sold) and attach it to Form 1120-S. Report the cost of goods sold amount on page 1, line 2 of Form 1120-S. Inventory must be valued using cost, the lower of cost or market, or another IRS-approved valuation method applied consistently from year to year.
Form 1125-A requires detailed reporting of the beginning inventory, purchases made during the year, the cost of labor directly attributable to production, additional Section 263A costs for taxpayers subject to uniform capitalization rules, other costs (including freight and indirect production costs), and the ending inventory, all valued using the same method applied to the beginning inventory.
Step 5: Report Passive Investment Income
List gross rental income from real estate and other rental activities, portfolio income including interest from all sources, ordinary and qualified dividends, royalties from licensing arrangements or natural resource extraction, and net capital gain from sale or exchange of securities and other investment property on Schedule K for allocation to shareholders.
If passive investment income exceeds 25 percent of gross receipts and the corporation has accumulated earnings and profits from years when it operated as a C corporation, excess net passive income tax applies at the corporate level. This penalty tax equals the highest corporate tax rate multiplied by the lesser of the corporation’s net passive income or its taxable income, effectively discouraging S corporations with a history of C corporation earnings from converting to passive investment vehicles.
Step 6: Prepare Schedule K-1 for Each Shareholder
Enter each shareholder’s pro-rata share of ordinary business income or loss, net rental real estate income or loss, other rental income or loss, interest income, dividend income, royalty income, net short-term and long-term capital gains or losses, net section 1231 gain or loss, charitable contributions, section 179 deduction, deductions for investment interest expense, and tax credits on Schedule K-1 (Shareholder’s Share of Income, Deductions, Credits, etc.).
The pro-rata allocation is based on each shareholder’s ownership percentage and the duration of ownership during the tax year for shareholders whose interests changed.
Suppose a shareholder is a greater-than-2-percent shareholder-employee of an S corporation. In that case, health insurance premiums paid by the corporation on behalf of that shareholder must be reported in Box 1 (Wages) of Form W-2 for self-employed health insurance deduction eligibility. However, these amounts are not subject to Federal Insurance Contributions Act taxes. This special reporting enables qualifying shareholders to claim an above-the-line deduction for health insurance premiums on their individual Form 1040.
Step 7: Complete Schedule D for Capital Transactions
Report all short-term capital gains and losses on Part I and all long-term capital gains and losses on Part II of Schedule D (Capital Gains and Losses and Built-In Gains), including sales of securities held for investment, dispositions of depreciable business property to the extent of gain exceeding depreciation recapture, and sales of other capital assets.
Attach Schedule D to Form 1120-S if the corporation recognized any capital gains, capital losses, or dispositions of property during the tax year. Capital gains and losses retain their character as they pass through to shareholders, allowing shareholders to apply their individual capital loss limitation rules and preferential capital gains rates on their personal tax returns.
Step 8: Calculate Corporate-Level Estimated Tax Liability
Determine whether the total of built-in gains tax from Schedule D, excess net passive income tax calculated when passive income exceeds thresholds, and recaptured investment credit tax from previously claimed investment tax credits equals or exceeds $500. If this aggregate threshold is met, the corporation must make quarterly estimated tax payments due April 18, June 15, September 15, and December 15, 2016, for calendar-year corporations.
These estimated payments prevent underpayment penalties and interest on corporate-level taxes, which represent exceptions to the general pass-through treatment of S corporation income.
Step 9: Assemble Return and Attach Required Schedules in Proper Sequence
Organize all forms and schedules in the prescribed attachment order to facilitate IRS processing. Attach in this sequence: Schedule N (Tax, Refundable Credits, and Payments), Form 8825 (Rental Real Estate Income and Expenses of a Partnership or an S Corporation) if the corporation owns rental real estate, Form 1125-A (Cost of Goods Sold) if inventory is maintained, Form 4136 (Credit for Federal Tax Paid on Fuels) if claiming fuel tax credits, Form 8941 (Credit for Small Employer Health Insurance Premiums) if eligible for the small business health care tax credit, additional schedules arranged alphabetically by schedule letter, and additional forms arranged numerically by form number.
This standardized assembly order enables efficient IRS scanning and processing of paper returns.
Step 10: Execute, Date, and File Timely
The president, vice president, treasurer, assistant treasurer, or any other authorized corporate officer must sign and date Form 1120-S in the signature section on page 1, certifying under penalties of perjury that the return has been examined and is true, correct, and complete.
File the completed return by the 15th day of the third month after the end of the tax year, which is March 15, 2016, for calendar-year corporations. If the due date falls on Saturday, Sunday, or a legal holiday, file on the next business day.
To obtain an automatic six-month extension of time to file, submit Form 7004 (Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns) by the original due date, extending the filing deadline to September 15, 2016. However, any corporate-level tax owing must still be paid by the original March 15 deadline to avoid penalties and interest.
Notable 2015 Form Changes from Prior Years
The 2015 Form 1120-S introduces mandatory reporting of health insurance for applicable large employers. Corporations with 50 or more full-time employees must attach Forms 1094-C and 1095-C, which document health coverage offers and enrollment verification, under sections 6055 and 6056. Prior tax years imposed no such ACA employer mandate reporting obligation on Form 1120-S. This marks the first year the Affordable Care Act enforces the employer shared responsibility provision, requiring detailed documentation of coverage offers for IRS premium tax credit eligibility and employer penalty assessments.
Calendar-year estimated tax payment dates for 2016 shift to April 18, June 15, September 15, and December 15, reflecting the calendar alignment of these dates with weekends and holidays. While the overall structure of quarterly estimated payments remains consistent with prior years, the specific due dates adjust based on the interaction of the standard 15th-day rule with weekend and holiday postponement provisions applicable to the 2015 tax year.
Form-Specific Limitations for S Corporations
Nonresident aliens cannot serve as direct shareholders of S corporations, limiting ownership to individuals who are U.S. citizens or residents, certain domestic trusts, including grantor trusts, and electing small business trusts, estates, and tax-exempt organizations described in Section 401(a) or Section 501(c)(3). An S corporation may not have more than 100 shareholders; however, family members and their estates are treated as a single shareholder under family aggregation rules.
The corporation may issue only one class of stock, meaning all outstanding shares must confer identical rights to distribution and liquidation proceeds. However, differences in voting rights are disregarded for this purpose.
Health insurance premium deductions for shareholders who are also employees with greater-than-2-percent ownership follow special reporting rules. Premiums must be paid by the corporation, included in the shareholder-employee’s Form W-2 wages in Box 1, and claimed as an above-the-line self-employed health insurance deduction on the shareholder’s Form 1040 only if the shareholder meets self-employed deduction eligibility requirements, including having net earnings from self-employment.
The Section 179 expense deduction for qualifying property is not deducted at the corporate level. Instead, the corporation passes through the Section 179 expense election to shareholders on Schedule K-1, Box 11, where it becomes subject to shareholder-level limitations, including the annual dollar limitation, business income limitation, and investment limitation, that apply to the shareholder’s individual tax return.
Conclusion
Completing the 2015 Form 1120-S requires understanding the new health coverage reporting obligations for applicable large employers, correctly calculating the Schedule L and M-1 filing threshold, accurately reporting passive investment income, and paying attention to excess net passive income tax exposure. Additionally, it involves the timely preparation of individual Schedules K-1 for all shareholders. The ten-step checklist outlines a systematic approach for gathering documentation, calculating income and deductions, preparing schedules, and completing the return package for timely filing by the March 15 or extended deadline following Form 7004.
Need Help With Your Tax Filing?
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
We offer:
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Call now before filing: (888) 260-9441
Fast transcript pull available
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
