What IRS Form 1120-S (2023) Is For
IRS Form 1120-S (2023) is the federal income tax return that S corporations must file each tax year to report the corporation’s income, deductions, tax credits, and other items to the IRS. This applies to both calendar-year S corporations and fiscal-year entities.
An S corp uses pass-through taxation, so profits and losses flow directly to shareholders for income tax purposes. Each shareholder reports their share of the company on Schedule K-1, which then affects their personal tax returns. Unlike C corporations that face double taxation at the corporate level and again on dividends, S corporations are taxed only once at the individual level.
When You’d Use Form 1120-S for 2023 (Late or Amended Filing)
File Form 1120-S if your corporation missed the March 15 due date (the 15th day of the third month after the close of the tax year) or needs to correct errors on a previously filed return. Late filings can result in monthly penalties per shareholder, as well as interest on unpaid taxes. If tax is owed but not paid, an additional 5 percent penalty applies for each month the tax is delinquent, capped at 25 percent.
Amended filings use the 2023 version and must include corrected Schedule K-1 forms so each shareholder’s income and deductions are properly reported on their individual returns.
For complete details on wage reporting, withholdings, and unemployment tax filings, see our guide to Business Income Tax Forms.
Key Rules Specific to 2023
- The temporary 100 percent business-meal deduction expired; only 50 percent of qualified meal expenses remains deductible.
- New digital-asset questions appear on Schedule B for income and other items such as capital gains from crypto transactions.
- Corporations filing 10 or more tax returns must e-file unless they qualify for hardship relief.
- Energy-efficient commercial-building deductions apply to eligible property placed in service during the 2023 tax year.
Step-by-Step Overview
- Compile Core Records: Gather gross receipts, sales, expenses, assets, and your Employer Identification Number to support the income tax return.
- Use the Correct Year’s Form: Select the 2023 form to report the corporation’s income, deductions, tax credits, and other items for income tax purposes.
- Prepare Schedule K and K-1s: Complete Schedule K and a Schedule K-1 for each shareholder to report each shareholder’s share of profits, losses, and deductions on their personal tax returns.
- Attach Required Forms And Schedules: Include applicable forms such as Form 4797, Form 1120, and others needed to report property transactions, capital gains, or other income.
- Submit Your Return: File through IRS-accepted e-file services or by mail if you qualify for an exception, keeping the due date tied to the third month after the end of the tax year.
- Retain Documentation: Keep copies of all forms, credits, and supporting workpapers for at least three years in case the IRS requests verification.
Common Mistakes and How to Avoid Them
- Unreasonable Compensation: Pay shareholder-employees a fair salary subject to payroll taxes before making distributions.
- AAA Errors: Track income and distributions accurately on Schedule M-2 to prevent misstating taxable income.
- Late Schedule K-1 Delivery: Issue K-1 forms to shareholders on time to avoid IRS penalties and interest.
- Ignoring Basis Limits: Do not claim losses exceeding stock and loan basis; maintain basis records each tax year.
- E-Filing Noncompliance: Use approved e-file methods if your corporation files ten or more returns to stay IRS compliant.
- Incorrect Classification of Income: Ensure that Schedule K and Schedule K-1 accurately reflect ordinary income and other items, such as capital gains.
- Missing Installment Agreements: If you owe tax after filing, submit an installment agreement request to avoid collections.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
The IRS usually processes e-filed returns within two to three weeks and paper returns in six to eight weeks. If additional tax is due, submit an installment agreement request (Form 9465) to set up a monthly installment plan. Interest and penalties continue to accrue until the balance is paid, so it is advisable to pay early.
Refunds expire three years after the original due date; therefore, file on time to protect your eligibility for a refund. For most calendar-year S corporations, the deadline is March 15, 2027. Penalty abatement requests may be submitted for reasonable cause, such as serious illness or natural disaster.
FAQs
What is IRS Form 1120-S (2023), and how does it relate to federal income tax for an S corporation?
IRS Form 1120-S (2023) reports the corporation’s income, expenses, deductions, and credits for federal income tax purposes. An S corporation passes these figures to its shareholders, who report them on their own income tax returns.
How does pass-through taxation work for S corporations compared to C corporations?
Under pass-through taxation, S corporations avoid double taxation because income flows directly to shareholders. C corps pay tax at the corporate level, then shareholders pay again on dividends. This structure benefits small business owners by reducing their overall tax burden.
Do capital gains and other income get reported on Schedule K and Schedule K-1?
Yes, Schedule K and Schedule K-1 summarize each shareholder’s portion of capital gains, other income, deductions, and credits. These entries help determine each shareholder’s taxable income for their personal tax returns.
How can I submit an installment agreement request if I owe taxes?
If your S corporation owes tax, you may file Form 9465 to request a monthly installment plan. Pay as agreed to avoid additional interest and penalties. The IRS will accept or deny based on the balance owed and filing history.
What should I do if a shareholder’s share of income on Schedule K-1 was misreported?
File an amended Form 1120-S and issue corrected Schedule K-1 forms so each shareholder’s share is accurate. Affected individuals must then amend their income tax return to match the correct data.
Can a disregarded entity or partnership elect to be taxed as an S corporation?
Yes, a qualified disregarded entity or partnership may elect S-corp status by filing Form 2553 with the IRS. Once accepted, the entity files Form 1120-S annually and reports its corporation’s income under S corporation rules.
How does an S corporation determine its tax liability and deductions?
The S corporation calculates taxable income by subtracting expenses from gross receipts. It then applies eligible tax credits and deductions for items such as property depreciation, salary paid to employees, and business services to arrive at the final tax owed.
