Key Takeaways
1. Companies are required to e-file IRS Form 1120 each year before certain deadlines to avoid penalties and fines.
2. The IRS cracks down on corporations that intentionally fail to file tax returns or those who willingly falsify or omit information.
3. Companies can check with the official IRS website to download the current form and learn detailed step-by-step information about completing and filing a Form 1120.
4. Collecting and compiling financial information well in advance of IRS deadlines can help prevent late tax returns and additional costs.
5. Form 1120 provides a way to report business expenses to determine eligibility for business tax credits.
All domestic for-profit corporations in the United States have the important business responsibility of reporting financials and paying the correct amount of taxes to the government. Financial and tax information is compiled on a special document called Form 1120. Wondering what is a Form 1120, how to use it, complete it, and what the requirements are?
Read on to learn more.
What Is a Form 1120?
The U.S. Corporation Income Tax Return, also known as Form 1120, is required by the Internal Revenue System (IRS) for business income reporting purposes. Companies operating in the U.S. that are not tax exempt under section 501 of the Internal Revenue Code, must report all income, capital gains, losses, and credits (deductions) they may be eligible for.
This data is gathered from a variety of internal financial sources, including accounting, payroll, receipts, bank records, expense reports, customer and vendor transactions, inventories, and more. Form 1120 is lengthy, but must be completed and filed with the IRS by a specific deadline.
Why Is a Form 1120 Necessary?
Form 1120 is required by the IRS so that all the proper information about a company’s financial status is reported for the previous tax year (calendar or fiscal). It is necessary so that businesses can calculate their tax liability for paying the correct amount of taxes.
Form 1120 gives companies a step-by-step approach to documenting this data in order to ensure it is complete and truthful. Not using the correct form, omitting or falsifying information can have serious consequences for the business.
Helpful hint: Even if a corporation (LLC choosing to file as a Corporation included) has no reportable income for the tax year, it must file a Form 1120.
Where to Find a Form 1120
The IRS provides a downloadable Form 1120. Be sure to use the most recently updated 1120 for each tax year. Some accounting systems are able to generate a Form 1120, which includes data the company provides.
Additionally, the outsourced accounting, payroll, or staff augmentation services used can provide a Form 1120 completed with some of the information.
How to Complete IRS Form 1120
IRS Form 1120 is quite complex as it includes many pieces of information generated by a company’s financial records. It is important to know how to complete this form so that it reflects accurate information for the previous tax year when filing. Before completing Form 1120, take a moment to review the written instructions that accompany the downloaded form that is available on the IRS website.
There you will also find information about 1120 Form updates and news regarding business tax filing, requirements, and deadlines.
Information Included on Form 1120
The 1120 Form is designed as a long document with information broken up by categories for each area of corporate finances.
The categories of Form 1120 include:
Business information
Business name, address, employer identification number (EIN), business tax filing status, incorporation date (LLC or other Corp), type of return (initial, final, changes), and total assets.
Business income
Gross receipts, sales, and profit, allowances, cost of goods, dividends, rents, royalties, returns and allowances, net income, net gain or loss, other income not included in previous sections.
Business deductions
Expenses, salaries and wages, employer-paid benefits (health premiums, retirement savings, and other contributions), pensions and profit-sharing, overhead costs (rent, equipment, repairs and maintenance, taxes and licenses) advertising, energy efficiency building credits, charitable donations, bad debts, depreciation of assets, and depletion of resources.
Business tax and refunds
This section will tally up the above information to provide the total net income (gross income – deductions) and the estimated tax liability.
Signatures and Paid preparer authorizations
Signed by an officer of the business or the paid preparer completing the 1120 on their behalf.
Helpful tip: When entering financial data, round up or down to whole numbers. For example, if an amount is $120.58 round up to $121.00; if the amount is $120.38 round down to $120.00. Be consistent when entering all data.
Where to Obtain Information for IRS Form 1120
The first page of Form 1120 summarizes all the business income. This is calculated by filling out the subsequent pages by each set of information – otherwise known as Schedule C through Schedule M (1-3).
Initially, the required information will come from sources such as the accounting platform or the third-party accountancy firm used by the business. Records of the previous tax year should also be on hand.
An organization can populate reports for revenues, payables, receivables, losses, profits, and business expenses from accounting. Other information comes from payroll records, which may be generated from the internal payroll system used or the outsourced payroll service provided.
In addition, the company must retain receipts for expenses, overhead costs, advertising, charitable donations, and other elements that the company can deduct from gross income.
Completing the Correct Form 1129 for the Business Type
As if it wasn’t already complicated, the IRS requires each business to complete the correct Form 1120, or other forms, depending on its type of business entity.
For example, S-corporations use an 1120-S. The IRS provides a complete list of what form to complete based on business types. By following the IRS guidelines, a business can correctly report financials and pay the correct tax amount without having to re-do the effort.
Here is a list of the specific tax forms to use based on type of business, as furnished by the IRS:
Downloaded from the Internal Revenue Service, Instructions for Form 1120 (2023)
Requirements of Form 1120
Before completing IRS Form 1120, there are some requirements to understand. Reviewing these requirements now will save headaches later. The requirements include filing deadlines, format, additional forms or schedules to attach, as well as how to make corrections or additions.
1. Deadline(s) for Filing Form 1120
Every business reporting financials is required by the IRS to file the Form 1120 by a certain deadline each year. This is in order for the correct tax liability and credits that the business is eligible for are processed in a timely manner.
Be mindful of deadlines and start compiling the necessary information well in advance.
The deadline for filing Form 1120 with the IRS is, “By the 15th day of the 4th month after the end of the corporation’s tax year. A corporation with a fiscal tax year ending June 30 must file by the 15th day of the 3rd month after the end of its tax year.” Businesses can request a six month extension for filing by requesting this with IRS form 7004. (TurboTax)
Penalties for not filing on time (even when requesting an extension) or failing to make the estimated tax payment can be steep. These penalties include additional interest assessed, and fines of between 1% to 5% per month if the unpaid tax is late or not paid, up to 25% maximum. Minimum penalties for tax returns filed more than 60 days late from the due date is $485 or the smaller of the tax due.
It is very important to plan for this and figure out the correct tax rates to be paid well in advance of the filing due date(s).
2. Paper or Electronic Filing?
In most cases, businesses are required to file electronically, which speeds up the process and avoids last minute mistakes or fines. This also helps business owners receive a faster response from the IRS on acceptance, if there are corrections to be made, or if an extension is requested. The normal response from the IRS is 5 days for an extension request response, and 10 days if the IRS has accepted or rejected the tax form(s) filed.
3. Payments and Tax Estimates
Any estimated tax should be paid along with electronic submittal of Form 1120 and associated forms. This information will be indicated on the final Form 1120 once it is completed.
Payments are accepted electronically as well. This will help avoid any penalties assessed for non-payment or late payment. Filing an extension can help an organization to have more time to make the full payment, but at the very least it is recommended to pay as much of the tax debt as possible when filing initially.
4. Making Corrections or Additions to Form 1120
Realized that a correction or an addition to the Form 1120 is needed (post-filing)?
No problem!
Companies can request an amendment by using IRS Form 1120-X. Be sure to include the reason for the change and other information required when submitting to the IRS.
5. About the Corporate Alternative Minimum Tax (CAMT)
When using Form 1120, it is vital to understand the Corporate Alternative Minimum Tax (CAMT) Act, which was enacted in 2022 as part of the Inflation Reduction Act. This law applies to all business tax returns filed after December of 2022.
The CAMT requires a 15% corporate tax to be applied to any taxes owed for corporations that have annual adjusted incomes exceeding $1 billion for the last three years consecutively. CAMT excludes S-corporations, regulated investment firms, real estate investment trusts, and private equities.
It is up to the required corporations to pay the higher amount based on their actual taxes.
Filing Form in 1120 in the United States
Companies who follow the guidelines set forth by the IRS (irs.gov) can complete Form 1120 and associated forms accurately and on time. This is only a general list of tips and requirements to help educate businesses about filing their tax returns. For more information about corporate tax obligations in the United States, get in touch with our US company expansion specialists.
Frequently asked questions
This depends on if the small business is registered as an LLC, choosing to file as a corporation for tax purposes, or an actual corporation.
Most sole proprietors (earning more than $400/year) will not use an 1120 Form, but rather file the income under their regular 1040 tax return.
There are many ways to reduce taxes owed. This can include taking tax deductions for government approved credits, making charitable donations, itemizing all business expenses, and more.
