Instructions for Form 1120S 2021 Checklist
Overview of Form 1120S for Tax Year 2021
Form 1120S for tax year 2021 reports an S corporation’s income, deductions, credits, and
separately stated items that pass through to shareholders using Schedule K and Schedule K-1.
The form reflects tax law in effect for 2021, including payroll tax credit interactions and reporting updates described in the 2021 instructions. It does not require reconciliation of Economic Impact
Payments, which apply only at the individual taxpayer level.
Certain pandemic-era provisions affected employer payroll tax reporting during 2021, including the employee retention credit under amended rules. These provisions interact with Form 1120S primarily through income tax deduction adjustments, not through separate pass-through credits on Schedule K. Individual-level provisions such as Recovery Rebate Credits and unemployment compensation exclusions are not reported on Form 1120S.
Ten-Step Checklist for Completing Form 1120S 2021
Step 1: Gather Corporate Accounting and Tax Records
Collect the general ledger, trial balance, bank statements, payroll registers, Forms W-2, and applicable Forms 1099. Include records for interest, dividends, capital transactions, and any pass-through K-1s received from other entities. Exclude Economic Impact Payment records, as those are not corporate-level tax items for Form 1120S.
Step 2: Confirm S Corporation Election Status
Verify that Form 2553 was timely filed and accepted and that the S election remained valid throughout 2021. Confirm that all shareholders were eligible under S corporation rules, meaning no nonresident alien shareholders existed during the year. If an ineligible shareholder situation occurred, document the event and review termination or relief procedures.
Step 3: Complete Cost of Goods Sold Reporting if Applicable
If the corporation has inventory, complete the cost of goods sold section on Form 1120S using the accounting method already on file. Support inventory figures with purchase and production records. If the corporation changed its accounting method during 2021, prepare and attach
Form 3115 as required by the instructions.
Step 4: Reconcile Income Items to the Books
Reconcile gross receipts, interest income, dividend income, capital gains or losses, and rental or other pass-through income to the books and records. Ensure totals reported on Form 1120S page 1 agree with the underlying accounting records and that separately stated items are properly identified for Schedule K reporting.
Step 5: Compute Ordinary Business Income or Loss
Calculate ordinary business income or loss directly on Form 1120S page 1 using reported income and deductible business expenses. Apply ordinary and necessary expense rules under the Internal Revenue Code. Do not attach Schedule C or Schedule C-EZ, as those schedules apply only to sole proprietors filing Form 1040.
Step 6: Address Employee Retention Credit Effects
If the corporation claimed the employee retention credit on employment tax returns during 2021, reduce the wage deduction by the amount of the credit as required. Do not report the employee retention credit itself as a separately stated item on Schedule K or Schedule K-1. Maintain payroll tax documentation supporting the credit calculation.
Step 7: Complete Schedule K Reporting
Prepare Schedule K to report total ordinary income or loss and all required separately stated items, including capital gains, charitable contributions, Section 179 deductions, and qualified business income components. Ensure Schedule K totals reconcile to Form 1120S page 1 and to the sum of all shareholder Schedule K-1s.
Step 8: Prepare Schedule K-1 for Each Shareholder
Prepare a Schedule K-1 for each person who was a shareholder during any part of 2021.
Allocate items using the per-share, per-day allocation rules unless a valid election applies.
Provide each shareholder with their Schedule K-1 by the due date of Form 1120S, including any extensions.
Step 9: Review Balance Sheet and Reconciliation Schedules
Determine whether the corporation meets the small corporation exception for completing
Schedule L, Schedule M-1, and Schedule M-2 by applying both the receipts and assets tests described in the instructions. If required, complete Schedule L and reconcile book income to tax income on Schedule M-1 and equity accounts on Schedule M-2.
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Step 10: Assemble, Sign, and File the Return
Assemble Form 1120S, schedules, and attachments in the order specified by the instructions.
An authorized corporate officer must sign and date the return. Include preparer information if
applicable. File the return by the required due date and use the mailing address listed in the
2021 Form 1120S instructions if filing on paper.
Clarifications on Common Misstatements for 2021
Economic Impact Payments and Recovery Rebate Credits apply only to eligible individuals and are not reported or reconciled on Form 1120S. The employee retention credit is claimed through employment tax filings and affects Form 1120S only by reducing deductible wages. S corporations do not attach individual schedules, such as Schedule C, and they do not pass through individual-only credits, such as earned income or education credits.
Notes on Schedule and Line References
For tax year 2021, Form 1120S does not include Schedule K line items for Economic Impact
Payment reconciliation or a separate line for the employee retention credit. The Internal
Revenue Service required that those matters be handled outside the Schedule K framework for
S corporations this year.
Separately stated items on Schedule K follow the standard 2021 line structure outlined in the instructions. These amounts are reported to shareholders on Schedule K-1. They are applied at the shareholder level for Income Tax Return purposes, including business deductions, tax rate calculations, estimated tax, and other federal taxes. Shareholders remain responsible for meeting filing deadlines, payment deadlines, and overall tax obligations based on the tax document information provided.
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