Instructions for Form 1120S 2016 Checklist
Overview of Form 1120S for Tax Year 2016
S corporations use Form 1120S for tax year 2016 to report income, deductions, credits, and losses that pass through to shareholders. The corporation generally does not pay federal income tax at the entity level because shareholders report their allocable shares on their own returns. The filing includes Schedule K as part of the return and a Schedule K-1 prepared for each shareholder.
The 2016 filing year predates the Tax Cuts and Jobs Act and does not include qualified business income deduction rules. Certain Affordable Care Act provisions affected individuals during this year, including the individual shared responsibility requirement, but Form 1120S itself is not used to reconcile or compute those individual obligations.
Eligibility and S Corporation Status Requirements
An S corporation must meet all eligibility requirements for the entire tax year to file Form 1120S.
The corporation must be domestic, must have no more than 100 shareholders, must have only one class of stock, and must have only eligible shareholders. Eligible shareholders generally include U.S. citizens or residents, certain trusts, and estates.
A nonresident alien is not an eligible S corporation shareholder. If a nonresident alien acquires stock, the S election generally terminates automatically on the date the corporation ceases to qualify as a small business corporation. Relief for an inadvertent termination may be available if the applicable requirements are met.
Core Reporting Concepts for 2016 Filers
S corporations compute income and deductions at the corporate level using standard tax accounting rules. Certain items must be reported separately because they affect shareholders differently, while other items combine into ordinary business income or loss. Shareholders apply limitations, including basis, at-risk, and passive activity rules, on their own returns using the information provided.
Schedule K reports the corporation’s total amounts for each required item. Schedule K-1 provides each shareholder with their specific pro rata share. The S corporation does not compute shareholder-level taxes, such as the net investment income tax, on the return.
Shareholder Allocations and Schedule K-1 Timing
Allocations of income, loss, deductions, and credits generally follow a per-share, per-day method for the period each shareholder owned stock during the year. This rule applies unless a permitted method applies due to ownership changes. Allocations based only on year-end ownership can misstate shareholder reporting.
A Schedule K-1 must be prepared for every shareholder who owned stock during any part of the year. Each shareholder must be furnished a Schedule K-1 when due, which is generally the due date of the Form 1120S return, including any extensions filed.
Records Required to Support the Return
Preparing Form 1120S requires maintaining records that support income, deductions, payroll, and shareholder activity. These records must align with the corporation’s books and with tax definitions applicable to 2016. Differences between book income and taxable income require reconciliation using the appropriate schedules.
For 2016, nonemployee compensation was generally reported on Form 1099-MISC rather than
Form 1099-NEC. Health coverage forms such as Form 1095-B may serve as personal records
for individuals, but they are not attached to Form 1120S and are not required to complete the corporate return.
Ten-Step Filing Checklist for Form 1120S 2016
Step 1: Gather Required Source Documents
Collect prior-year Schedule K-1s, Forms W-2 issued to employees and officers, Forms
1099-INT, 1099-DIV, and 1099-B, business expense receipts, depreciation schedules, and accounting records supporting income and deductions. Retain bank statements and documentation supporting charitable contributions and asset transactions.
Step 2: Confirm Shareholder Eligibility
Review shareholder records to confirm that all shareholders during the year were eligible S corporation shareholders. Verify that no nonresident alien held stock during the year. Address any ownership issues promptly, because ineligible shareholders can affect S corporation status.
Step 3: Report Ordinary Business Income or Loss
Compute gross receipts, cost of goods sold, and deductible expenses on page 1 of Form
1120S. Determine ordinary business income or loss following the form instructions. Carry this amount to Schedule K as ordinary income or loss.
Step 4: Complete Schedule K as a Corporate Summary
Report the corporation’s total income, losses, deductions, credits, and other required items on
Schedule K using the line structure shown on the 2016 form. Separately state items required by the instructions, including interest income, dividends, charitable contributions, and Section 1231 gains or losses.
Step 5: Prepare Schedule K-1 for Each Shareholder
Complete a Schedule K-1 for each shareholder who owned stock during the year. Allocate items based on ownership during the year and include all required identifying information. Furnish each Schedule K-1 to shareholders by the due date of the return, including extensions if applicable.
Step 6: Identify Items Relevant to Net Investment Income
Report income items on Schedule K and Schedule K-1 that may be relevant to shareholder net investment income tax calculations. The S corporation does not compute net investment income or tax owed. Shareholders determine whether they must file Form 8960 and compute the tax on their own returns.
Step 7: Attach Applicable Schedules and Forms
Attach only the schedules and forms that apply to the corporation’s activities. These may include
Schedule D for capital gains and losses, Form 4797 for sales of business property, Form 8824 for like-kind exchanges, and Form 4562 for depreciation and amortization when applicable.
Step 8: Complete Balance Sheet and Reconciliation Schedules
Determine whether Schedules L, M-1, and M-2 are required based on the corporation’s size and facts under the 2016 instructions. When required, report balance sheet information, reconcile book income to taxable income, and analyze changes in shareholder equity accounts.
Step 9: Assemble the Return and Sign
Assemble Form 1120S and all applicable schedules following the 2016 instructions for attaching documents after page 5. Ensure an authorized corporate officer signs and dates the return and includes their title. A paid preparer must complete and sign the preparer section when applicable.
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Step 10: File the Return by the Required Due Date
File Form 1120S by the 15th day of the third month following the close of the tax year, which is
March 15 for calendar-year 2016 S corporations. Use the 2016 Where To File table to determine the correct mailing address if filing by paper, and include the corporation’s EIN on all attachments.
Form-Specific Limitations and Shareholder
Considerations
Losses passed through to shareholders are deductible only to the extent of each shareholder’s adjusted basis in stock and debt. Excess losses are suspended and carried forward until the shareholder has sufficient basis. These limitations apply at the shareholder level rather than on the corporate return.
The domestic production activities deduction under former IRC Section 199 remained available for tax years beginning before 2018. For 2016, this deduction was generally computed using
Form 8903 and passed through to shareholders rather than claimed directly by the S corporation.
Year-Specific Notes for the 2016 Filing Year
The 2016 instructions maintain a structure consistent with prior years and emphasize accurate reporting of separately stated items. Tax-exempt interest is reported as an item affecting shareholder basis rather than as taxable interest income. Charitable contributions are separately stated and passed through to shareholders, who apply limitations and carryovers on their own returns.
Before filing, review the return for internal consistency. Confirm that Schedule K totals match the aggregate of Schedule K-1 amounts, required schedules are included when applicable, and shareholder information reflects ownership during the year. Careful review supports accurate compliance with 2016 reporting requirements.
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