Who Needs to File Form 1120-S?
- Keep your accounting records and financial statements up-to-date. An accurate balance sheet and income statement helps to make preparing your S Corporation tax return extremely easy every year and will ensure that you don’t run the risk of reporting too much (or too little) income. If your business grows big enough, you’ll be required to report your balance sheet on Schedule L of your S corporation’s tax return.
Record your income. The first section of Form 1120-S is where your business’s income and cost of goods sold are recorded.
Record your expenses. The second section of Form 1120-S is where your business’s expenses are recorded.
Calculate your net profit or loss. Subtract your total expenses from your gross income to compute your net profit or loss. On an S Corporation tax return, the technical name for your business’s profit or loss is “ordinary income or loss”.
Record taxes owed and payments made. The vast majority of S Corporations do not owe taxes at the business entity level. As discussed before, shareholders normally pay taxes on their share of the business’s profits on their individual tax returns. There are several limited circumstances where an S Corporation would owe taxes at the entity level. This is the section where these tax liabilities would be recorded.
Answer questions on Schedule B. Stretching over all of Page 2 and on to Page 3 of Form 1120-S, Schedule B can be thought of as a questionnaire that encompasses various areas of your business. The questions range from asking about the business’s stock structure to ownership interest by shareholders.
Complete Schedule K. This schedule is what will be used to allocate dollar amounts and other information from Form 1120-S to the shareholders.
Complete Schedule L. If required, complete Schedule L. This is where you would report your business’s balance sheet.
Complete Schedule M-1. This schedule is where you reconcile taxable vs. non-taxable income and deductible vs. non-deductible expenses.
Complete Schedule M-2. This schedule is a more detailed look at the shareholders’ capital accounts.