Form 1120S (2017) Shareholder Reporting Guide

Instructions for Form 1120S 2017 Checklist

Overview of Form 1120S for Tax Year 2017

S corporations use Form 1120S for tax year 2017 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 individual returns. The filing includes Schedule K as part of the return and a Schedule K-1 prepared for each shareholder.

The 2017 filing year precedes the effective date of the Tax Cuts and Jobs Act. Qualified business income deduction rules under Section 199A do not apply to this year. Affordable Care

Act provisions affecting individuals and employers were in effect in 2017, but Form 1120S itself is not used to compute or reconcile employer shared responsibility payments.

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 may include

U.S. citizens or residents, certain trusts, and estates.

A nonresident alien individual is not an eligible shareholder of an S corporation. If an ineligible shareholder acquires stock, the S election generally terminates automatically on the date the corporation ceases to qualify. Relief for an inadvertent termination may be available if the corporation meets the applicable requirements.

Core Reporting Concepts for 2017 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.

Schedule K reports the corporation’s total amounts for each required item. Schedule K-1 provides each shareholder with their specific pro rata share. Although the S corporation is generally a pass-through entity, it may owe certain entity-level taxes, such as built-in gains tax or excess net passive income tax, when applicable.

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 solely 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 by the due date of the Form 1120S return, including extensions if a valid extension is filed.

Records Required to Support the Return

Preparing Form 1120S requires records supporting income, deductions, payroll, and shareholder activity. These records must align with the corporation’s books and with tax definitions applicable to 2017. Differences between book income and taxable income require reconciliation using the appropriate schedules.

For 2017, nonemployee compensation was generally reported on Form 1099-MISC. W-2 wages represent deductible expenses rather than income items. Information returns document payments, but do not determine whether an amount is reported as income or as a deduction on

Form 1120S.

Ten-Step Filing Checklist for Form 1120S 2017

1. Step 1: Gather Shareholder Documentation and Ownership Records

   Collect prior-year Schedule K-1s, documentation of shareholder ownership percentages, records of capital contributions and distributions, and Schedule B-1 if required to report information about certain types of shareholders. Retain supporting documentation for basis calculations.

2. Step 2: Compile Income and Expense Records

   Assemble accounting records supporting gross receipts, investment income, rental income, and other income items. Separately gather records for deductible expenses, including officer compensation, wages, rent, and other operating costs. These records support amounts reported on Form 1120S.

3. Step 3: Verify S Election Status and Shareholder Eligibility

   Confirm that Form 2553 remained in effect for the entire 2017 tax year. Review shareholder records to ensure all shareholders were eligible under S corporation rules. Address any eligibility issues promptly, because ineligible shareholders can affect S corporation status.

4. Step 4: Complete Schedule K as a Corporate Summary

   Report the corporation’s total income, deductions, credits, and other required items on Schedule

   K. Identify items by character, including ordinary business income, rental real estate activity, charitable contributions, foreign taxes, and other separately stated items. Ensure Schedule K totals reconcile with the Form 1120S totals.

5. Step 5: Prepare Schedule K-1 for Each Shareholder

   Prepare a separate Schedule K-1 for each shareholder, reporting that shareholder’s pro rata share of all Schedule K items. Include required identifying information and ownership percentages. Furnish each Schedule K-1 to the shareholder by the return due date, including extensions when applicable.

6. Step 6: Identify Passive Activity Items

   Identify items that may be subject to passive activity rules and report them on Schedule K and

   Schedule K-1 with sufficient detail for shareholders. Do not apply shareholder-level passive activity limitations on the corporate return. Shareholders determine the treatment based on their own participation.

7. Step 7: Report Capital Gains and Other Asset Transactions