Filing Form 1120: The Complete Guide for Businesses to File Tax Returns

When you start a new business, you take on a world of new responsibilities! One of these is filing Form 1120 (U.S. Corporate Income Tax Return) - a six-page form that needs to be filled with a lot of financial information.

Let’s take a look at what Form 1120 is, who needs to file this document, how to file it, and what business information is needed to fill in the form.

It's worth noting that as per the new Tax Cuts and Jobs Act, all corporate income tax returns will be taxed at a fixed rate of 21%, regardless of their incomes. For the financial year 2020, the deadline for filing is set as April 15, 2021.

What Is Form 1120?

IRS Form 1120 is a special document for American corporations to report their credits, deductions, losses, gains, and income. It also helps you find out how much income tax your business needs to pay, as per the IRS.

Companies getting taxed as C corporations have to file their tax returns with IRS Form 1120. It is like a C corp equivalent to your personal tax Form 1040.

Unlike other company structures, companies taxed as C corporations pay a flat 21% corporate tax rate on the taxable income. In contrast, sole proprietorships and partnerships are considered pass-through entities that do not pay entity-level taxes.

Form 1120 is also known as the U.S. Corporation Income Tax Return.

Who Must File Form 1120?

Just to make it simpler to understand, a corporation or C corp is a type of business structure that is a separate legal entity from its owners. The business owners, or shareholders, are not personally liable for the company’s debts and actions.

If your business is registered as a corporation or files tax returns as a corporation, you need to file Form 1120. This includes:

• C corporations
• LLCs filing as corporations

Once you get your business incorporated, you have to file Form 1120 annually.

What You Need to File Form 1120

Tax returns filing can be tricky, especially for businesses, as there are many records and data to be considered.

As a good practice, you should create a checklist of the information you should have on hand, whether you’re filing Form 1120 yourself or your accountant is taking care of it.

• Employer Identification Number (EIN)
• The date you incorporated the business
• Total assets held by your company
• Gross receipts
• Cost of Goods Sold (COGS)
• Total income
• Dividends earned
• Interest earned
• Royalties earned
• Capital gains
• Tax deductions

Filling up Form 1120

Source

Form 1120 comprises six pages. The first page has four preliminary sections, which are:

• Basic corporation information
• Income
• Deductions
• Tax, refundable credits, and payments

The other five pages deal with more detailed information, like your dividends, special deductions, balance sheet, and other accounting information.

Before you file Form 1120, make sure you sign and date the bottom of the first page.

Next, follow these steps to fill the form out:

1. Build Your Tax Team

First things first - gather a tax team that should include a corporate tax professional and corporate tax filing software. It’s infamously long-winded, so engaging a tax professional would help you complete the form faster.

As an owner of a C corporation, you cannot use a self-employment tax software program. Rather, you need software that has options for C corporations, like TurboTax, or a complete bookkeeping solution like Fincent.

2. Fill Out Most Of Page 1

The first page of 1120 asks for basic information, which gives the IRS a glance at your company’s tax situation. You can fill out much of this with the help of information stored in your accounting software.

3. Fill Out the Schedules

As per various circumstances, it may be necessary to attach additional forms, also known as schedules. Here are the schedules you need to fill out along with filing tax Form 1120:

Schedule C

Just like people, C corporations are allowed to buy stocks in different companies. C corporations report their annual dividend income from stock investments on Schedule C of Form 1120.

Schedule J

This section calculates your tax liabilities by taking in information on your business tax credits and estimated tax payments. Tax credits are termed as dollar-for-dollar reductions on your tax liability.

Schedule K

In Schedule K, you need to input additional details about the owners, along with their holdings in other companies.

Schedule L

Schedule L recreates your company’s balance sheet per your books. You can open the balance sheet (year-end) in your accounting software to fill out this section.

(link: https://fincent.com/blog/a-detailed-guide-to-filing-schedule-k1-tax-form text: Schedule 1 tax form) is is used to report types of income that aren't listed on the 1040, such as capital gains, alimony, unemployment payments, and gambling winnings

Schedules M-1 and M-2

As the IRS calculates some expenses, like depreciation, differently from the Generally Accepted Accounting Principles (GAAP), Schedules M-1 and M-2 help explain to the IRS the differences between your statements for book and tax purposes.

4. Look For Other Required Schedules

Depending on specific business activities at your organization, you may have to fill up and attach a few more forms. Some common attachments include:

• Form 1125-A: For companies with a cost of goods sold
• Form 1125-E: To enlist compensations with gross receipts of $500,000 or more
• Form 4797: For the sale of any business property
• Form 4563: For calculating depreciation and amortization
• Schedule D: For capital gains and losses

5. Return to Page 1

Once you are done with the rest of Form 1120 and the required schedules, you’re ready to hit the finish button on the first page.

6. Review and File Your Return

You’re done! After reviewing your return along with your tax team, you can e-file Form 1120 using the tax software or have your tax preparer do it.

Where to File Form 1120?

You can either file Form 1120 online or by mail. However, we recommend submitting it online as it’s faster, easier, and cuts back on paperwork. Also, if your corporation has reportings of $10 million or more in assets, you are required to file online.

When Is Form 1120 Due?

The due date for Form 1120 depends on its fiscal year. Many C corporations use a calendar year, while others start their year in July or October.

Usually, C corporations must file their Form 1120 by the 15th day of the fourth month after the end of its tax year. For the financial year 2020, the deadline for filing is set as April 15, 2021.

In Conclusion

Tax keeping can be an added burden to your ongoing business processes, and failure to submit even one form may lead to penalties from the IRS. Additionally, allocating existing resources for this activity may take a toll on your productivity and efficiency during tax season.

That's why it is recommended to hire a professional bookkeeping service like Fincent.

Fincent is designed especially for creative businesses. We have a unique process that is rightly suited to manage the finances of entrepreneurs, sole proprietors, or freelancers working in the creative services field.

From recording your daily transactions to preparing the final ledgers, our streamlined support has got you covered! Learn more.