Instructions for Form 1120S 2020 Checklist
Overview of Form 1120S for Tax Year 2020
Form 1120S reports an S corporation’s income, deductions, credits, and other required items for
the 2020 tax year. The corporation generally does not pay federal income tax at the entity level.
Instead, it reports items on Schedule K and allocates them to shareholders on Schedule K-1 for inclusion on individual returns.
For 2020, several federal tax provisions affected how information flows to shareholders, including ongoing TCJA rules and temporary COVID-era relief. Certain widely discussed individual tax items, such as Economic Impact Payments and the unemployment compensation exclusion, apply only at the individual level and do not belong on Form 1120S or Schedule K-1.
Form 1120S also includes reporting for items that affect shareholder-level calculations, including basis adjustments, passive activity items, business interest limitations, and qualified business income information. Accurate separation of entity-level reporting and shareholder-level tax consequences remains critical for proper compliance in 2020.
Key Filing Principles for 2020
Before preparing the return, it helps to understand several foundational rules that apply to all S corporations filing for 2020.
- The S corporation reports income and deductions on Form 1120S and Schedule K, then
allocates them to shareholders using Schedule K-1.
- Shareholders compute their own taxes, including Net Investment Income Tax, qualified
business income deductions, and other limitations, using the information provided.
- Individual-only tax benefits, credits, and exclusions do not pass through the S
corporation return.
These principles guide the structure and content of the checklist below.
10-Step Checklist: Form 1120S 2020
Step 1: Confirm S Corporation Eligibility for 2020
Verify that the S election remained valid for the entire 2020 tax year. The corporation must meet eligibility requirements, including domestic status, a single class of stock, no more than 100 shareholders, and only eligible shareholders. A nonresident alien shareholder is not permitted and can terminate S status if present.
Step 2: Gather Core Financial and Payroll Records
Assemble the corporation’s 2020 accounting records, including income statements, expense ledgers, and bank records. Collect payroll documentation, including Forms W-2, quarterly payroll tax filings, and payroll summaries. For contractor payments made during 2020, retain
Form 1099-NEC documentation where applicable, along with depreciation schedules for assets placed in service or depreciated during the year.
Step 3: Identify Ordinary Income and Separately Stated Items
Compute ordinary business income or loss on page 1 of Form 1120S. Identify items that require separate reporting on Schedule K and Schedule K-1, including charitable contributions, capital gain items, Section 1231 items, and other amounts subject to shareholder-level limitations. This separation ensures shareholders apply the correct tax treatment on their returns.
Step 4: Report Depreciation and Asset Activity Accurately
Prepare Form 4562 to report depreciation, amortization, and any Section 179 election made for
2020. If the corporation disposed of business property, report the transaction using the appropriate disposition forms, such as Form 4797. Keep respected boundaries between depreciation reporting and gain or recapture reporting.
Step 5: Apply the Business Interest Expense Limitation
Evaluate whether Section 163(j) limits the corporation’s deduction for business interest expense in 2020. The limitation depends on business interest income, adjusted taxable income, and applicable relief provisions in effect for the year. If interest expense is disallowed, carry it forward at the S corporation level rather than allocating it to shareholders.
Step 6: Prepare Schedule K with Corporation-Level Totals
Complete Schedule K by reporting total ordinary income or loss and all separately stated items for the corporation. Ensure Schedule K aligns with the amounts on Form 1120S, page 1, and the supporting schedules. Schedule K serves as the source document for preparing individual shareholder Schedules K-1.
Step 7: Prepare Schedule K-1 for Each Shareholder
Prepare a Schedule K-1 for every individual or entity that held S corporation stock at any point during 2020. Allocate items based on ownership percentages and the period each shareholder owned stock. Avoid limiting preparation to shareholders present only at year-end, since ownership changes during the year affect allocations.
Step 8: Communicate Basis-Related Information Correctly
Understand how Schedule K-1 items affect shareholder basis. Income items generally increase basis, while distributions, losses, deductions, and nondeductible expenses decrease basis.
Charitable contributions reduce a shareholder's basis because they are deductible. Accurate reporting supports correct basis tracking and prevents downstream reporting errors.
Step 9: Exclude Individual-Only Tax Items from the Return
Do not report Economic Impact Payments or Recovery Rebate Credit reconciliation on Form
1120S or Schedule K-1. These payments apply to individuals and are handled on Form
1040-series returns. Likewise, unemployment compensation and the related 2020 exclusion apply only to individuals and do not pass through the S corporation return.
- An S corporation cannot have a nonresident alien shareholder under the eligibility rules.
- Excess business loss limitations do not apply for the 2020 tax year due to a temporary
- Net operating losses and similar limitations are generally addressed at the shareholder
- Employment taxes apply to shareholder-employee wages, while pass-through income
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Step 10: Assemble, Sign, and File the Return
Assemble Form 1120S with only the schedules and forms required for the corporation’s facts and size. Remember that Schedule B on Form 1120S is titled “Other Information,” not an income schedule. An authorized corporate officer must sign and date the return. File by the applicable due date, generally March 15, 2021, for calendar-year corporations.
Form-Specific Limitations for 2020
Several limitations apply specifically to S corporations and affect how items appear on the return. repeal. level, not on Form 1120S. generally does not create self-employment tax.
These limitations reinforce the need to distinguish between entity reporting and shareholder tax calculations.
Updates and Clarifications Relevant to 2020
For 2020, no Schedule K or Schedule K-1 lines were created to report Economic Impact
Payments or unemployment compensation. These items remain outside the S corporation reporting framework. Schedule K and Schedule K-1 continue to report income, deductions, credits, and informational items that shareholders use to complete their own returns.
Schedule K-1 continues to include sections for alternative minimum tax items, qualified business income information, and other data that may affect shareholder-level calculations. The corporation reports the underlying items and required disclosures, while shareholders apply the tax rules applicable to their personal circumstances.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
