Instructions for Form 1120S 2018 Checklist
Purpose and Scope for Tax Year 2018
Form 1120S for tax year 2018 reports an S corporation’s income, deductions, credits, and other
items and passes them through to shareholders using Schedule K and Schedule K-1. The corporation files annually and prepares a Schedule K-1 for each shareholder who held stock during any part of the year. The reporting obligation depends on shareholder status, not on any shareholder activity level.
The 2018 filing year reflects Tax Cuts and Jobs Act changes that affect many businesses, including modified depreciation rules and new Section 199A reporting needs for eligible owners.
The Net Investment Income Tax under Section 1411 applies at the shareholder level, and shareholders use information from the Schedule K-1 to determine whether they owe it. This return provides information but does not compute the shareholder’s NIIT.
Eligibility Requirements and Shareholder Rules
Before you prepare the return, confirm that the corporation remained eligible to be an S corporation for the full tax year. Eligibility generally depends on being a domestic corporation, having a single class of stock, and having no more than 100 shareholders. Shareholder eligibility focuses on who owns the stock, and it does not depend on participation or hours worked.
If ownership changed during the year, allocations generally follow the period of ownership rather than year-end ownership alone. Schedule K reports corporate totals for each item, and
Schedule K-1 reports each shareholder’s pro rata share. Each shareholder receives a Schedule
K-1 to report items on their own return.
What Section 199A and NIIT Mean for 2018 Reporting
Section 199A rules apply beginning in 2018 and may require the corporation to provide owners with specific information so they can compute the deduction on their own returns. The corporation reports information relevant to Section 199A through Schedule K-1 and related statements as required for 2018 reporting. This process supports owner compliance, and it does not convert the S corporation return into a computation of each owner’s deduction.
The Net Investment Income Tax applies to individuals, estates, and trusts that meet the applicable thresholds and is computed on Form 8960 when it applies. The S corporation reports underlying income and expense items that may be relevant and may provide NIIT-related
information on the Schedule K-1. The shareholder determines whether NIIT applies and computes the tax on the shareholder's return.
Ten-Step Checklist for Form 1120S 2018
Step 1: Gather Corporate Formation and Governance Records
Collect Articles of Incorporation, bylaws, shareholder agreements, corporate minutes, stock ledgers, and bank statements for the 2018 tax year. Confirm the corporation met S corporation eligibility requirements for the full year, including the shareholder limit, the one-class-of-stock rule, and eligible shareholder status. Keep records that support ownership changes during the year.
Step 2: Collect Payroll and Information Reporting Records
Collect Forms W-2 for officers and employees and payroll records that support wage and withholding amounts reported elsewhere. For 2018, nonemployee compensation was generally reported on Form 1099-MISC, so gather any Forms 1099-MISC issued or received that support your books. Collect Forms 1099-INT and 1099-DIV for portfolio income documentation as needed.
Step 3: Organize Shareholder Activity and Allocation Support
Compile information needed to prepare a Schedule K-1 for each shareholder who owned stock during any part of 2018. Include records of capital contributions, distributions, and ownership changes that affect allocations. Confirm that total allocations across shareholders align with corporate totals for each reported item.
Step 4: Compute Ordinary Business Income on the Main Return
Compute ordinary trade or business income or loss on Form 1120S page 1, line 21, using the corporation’s books and the tax rules applicable to 2018. Apply cost recovery rules applicable to
2018 when calculating depreciation-related deductions using the correct supporting forms where required. Carry the result to Schedule K line 1 and to Schedule K-1 box 1 as applicable.
Step 5: Complete Schedule K as the Corporate Total Summary
Complete Schedule K to report the corporation’s totals for separately stated items and for ordinary business income or loss. Report items in the categories shown on the 2018 form, including interest income, dividend income, charitable contributions, and other separately stated items. Treat Schedule K as the corporation-level summary, and treat Schedule K-1 as the shareholder-level allocation tool.
Step 6: Prepare Schedule K-1 for Each Shareholder
Prepare one Schedule K-1 per shareholder and enter the shareholder’s identifying information and ownership percentage information as required. Provide each shareholder’s pro rata share of the items reported on Schedule K using the corporation’s allocation method. Provide the
Schedule K-1 to the shareholder for use in preparing the shareholder’s return.
Step 7: Provide Section 199A Information Through K-1 Reporting
Provide Section 199A-related information to shareholders through the Schedule K-1 and any required statements. Include the types of information required for Section 199A computations, such as qualified business income details and any wage or qualified property information when required for 2018 reporting. Avoid mixing this information with shareholder W-2 wages, because shareholder wages are not a standard K-1 item.
Step 8: Attach Only the Forms and Schedules That Apply
Attach supporting forms and schedules only when the corporation’s facts require them. Use
Form 4562 for depreciation and amortization when required, and use Schedule D (Form 1120S)
and Form 8949 when required by the type of transactions reported. Use the correct cost of goods sold form when it applies, and avoid using schedules that do not belong in Form 1120S.
Step 9: Apply Schedule L and Reconciliation Requirements Correctly
Complete Schedule L and Schedule M-1 only if required based on the receipts and asset thresholds and the applicable Schedule B question for 2018. If the corporation qualifies for the exception, it is not required to complete Schedules L and M-1. Complete Schedule M-2 when required under the applicable rules for the year and the corporation’s reporting posture.
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Step 10: Sign, Assemble, and File on Time
Sign the return in the officer or fiduciary signature area, and print the signer’s name, title, and the date. If a paid preparer prepared the return, the preparer completes and signs the paid preparer section using the preparer’s identifying information. File the completed return by the fifteenth day of the third month after year-end, which is March 15, 2019, for calendar-year 2018 filers, and use the 2018 Where To File guidance to select the correct address.
Form-Specific Limitations for 2018 Filings
S corporations report charitable contributions as separately stated items and pass them through to shareholders on Schedule K-1. Shareholders apply the applicable limits on their own returns based on their circumstances. Avoid applying C corporation charitable contribution percentage
limits at the S corporation level, because that framework does not govern the pass-through reporting structure.
Net operating loss rules can affect taxpayers who compute an NOL deduction against taxable income, and the relevant limitations apply to the taxpayer claiming the deduction. S corporation losses generally pass through to shareholders and remain subject to shareholder-level limitations, including basis, at-risk, and passive activity rules. Any NOL computation generally occurs at the shareholder level rather than as an S corporation Schedule K carry-forward item.
Line and Schedule Change Summary for 2018
The 2018 instructions clarify that qualified business income subject to Section 199A limitation rules must be separately identified on the tax return. This disclosure supports shareholder calculations of the Section 199A deduction under current tax law following the TCJA. Clear identification helps shareholders meet their tax obligations and improves overall tax reporting accuracy.
Schedule K continues to report corporate-level totals, while Schedule K-1 provides shareholder-specific allocations. Consistent reporting across both schedules supports tax compliance and reduces issues during review or filing.
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