Form 1120-S
The U.S. Income Tax Return for an S Corporation. Income passes through to shareholders, but only if the company, its owners and its payroll all follow the rules.
Illustration of Form 1120-S page 1, Schedule K-1 and the shareholder's Form 7203. Not the actual IRS forms.
Mar 15
due date for calendar-year S corporations
100
shareholder limit to keep S status
1
class of stock allowed
K-1
for every shareholder, every year
Who needs to file
Corporations and LLCs that elected S status on Form 2553 file Form 1120-S each year, even if they had no income. Keeping that status takes meeting a few tests.
A U.S. corporation, or an LLC that elected to be taxed as one, with a valid S election.
Family members can be counted as one shareholder for this test.
Generally individuals, estates and certain trusts. No partnerships, corporations or nonresident aliens.
Every share has identical rights to distributions and liquidation proceeds.
Companies that switched to S status carry special rules for built-in gains and old earnings.
Why it's complicated
S corporations can cut self-employment tax, but the IRS watches how owners pay themselves, take money out and track their basis.
Shareholder-employees must take a reasonable salary before distributions. Too low and the IRS can reclassify distributions as wages.
Stock and debt basis decide whether losses are deductible and distributions are tax-free. Many shareholders now report it on Form 7203.
The accumulated adjustments account, and any old C corporation earnings, decide how distributions are taxed.
A former C corporation can owe corporate-level tax on appreciated assets sold within five years of converting.
Disproportionate distributions or an ineligible shareholder can put S status at risk.
Health insurance and many fringe benefits for owners have their own reporting rules through payroll.
Penalties
An S corporation usually owes no income tax, but a late return is still penalized, and the amount grows with every shareholder.
× owners
A late-filing penalty for each shareholder, for each month late, up to 12 months.
K-1s
Separate penalties apply for late or incorrect K-1s given to shareholders.
Payroll
Unreasonably low salary can lead to back payroll taxes, interest and penalties.
Status
Breaking an eligibility rule can terminate the S election altogether.
The IRS offers relief procedures for some late S elections, and penalty relief may be available for late returns. Let's see what applies.
Where CPA judgment helps
I prepare the 1120-S with your personal return in mind, since that's where every number lands.
A salary you can defend, balanced against the payroll tax it saves.
Health insurance and fringe benefits reported the right way.
Tracking basis and AAA so money you take out isn't taxed twice.
Balancing wages and profit to support the qualified business income deduction.
Form 1120-S · From $1,499
Tell me about your company and I'll send a quote. Final pricing depends on the number of shareholders and the complexity of the return.
Become a clientOr email seanpark@sptaxcpa.com