How to File Form 1120 for a C Corporation

A C corporation is a business entity that is legally separate from its owners, meaning the corporation itself is taxed on its profits. The form for this process is Form 1120, U.S. Corporation Income Tax Return, which reports the corporation’s income, gains, losses, deductions, and credits to the Internal Revenue Service (IRS) to determine its tax liability. All domestic C corporations are required to file Form 1120, regardless of whether they have taxable income. This includes corporations in bankruptcy.

Key Tax Principles of a C Corporation

A feature of a C corporation is how it is taxed. The Tax Cuts and Jobs Act of 2017 established a flat federal corporate income tax rate of 21% on net profits. This rate applies to a corporation’s taxable income, calculated by subtracting allowable deductions from the company’s total income. This structure differs from pass-through entities, like S corporations or partnerships, where profits are passed to owners and taxed at their individual rates.

This leads to a concept known as double taxation. The corporation first pays tax on its earnings at the 21% corporate rate. If the corporation distributes its after-tax profits to shareholders as dividends, those shareholders must report that dividend income on their personal tax returns. This income is then taxed again at the individual’s dividend tax rate, creating a second layer of taxation.

C corporations are required to pay estimated taxes throughout the year if they expect to owe $500 or more in tax. These payments are made in four installments, with due dates on the 15th day of the 4th, 6th, 9th, and 12th months of the corporation’s tax year. These payments help ensure the corporation meets its annual tax liability without a large balance due when filing.

Required Information for Filing Form 1120

Before completing Form 1120, a corporation must gather specific identifying and financial information. This includes the company’s legal name, mailing address, Employer Identification Number (EIN), the date of incorporation, and the total value of the corporation’s assets at the end of the tax year.

The tax return relies on comprehensive financial statements for the tax year. You will need a complete income statement detailing all sources of revenue, including gross receipts from sales, returns and allowances, and income from dividends and interest. The balance sheet must list all assets, liabilities, and shareholder equity at the beginning and end of the tax year.

A detailed compilation of all business expenses is necessary to claim allowable deductions. Records for expenses such as compensation of officers, salaries, rent, business interest, taxes, and licenses must be organized. Other common deductions include depreciation, advertising costs, and charitable contributions.

The official Form 1120 and its instructions are available on the IRS website. Gathering the required financial statements and expense records beforehand streamlines the process of transferring data to the tax form.

Navigating Key Sections of Form 1120

The first page of Form 1120 is dedicated to calculating the corporation’s taxable income. Information from the income statement is used to report gross receipts, from which the cost of goods sold is subtracted to determine gross profit. Other income sources are added to arrive at total income, and then categorized deductions are subtracted to compute the taxable income.

Schedule L, the Balance Sheet per Books, is a mandatory part of the return for most corporations. This schedule requires a presentation of the company’s financial position, comparing the beginning of the tax year to the end. The data for Schedule L is taken directly from the corporation’s balance sheet, detailing assets, liabilities, and stockholder’s equity.

A component of the return is Schedule M-1, Reconciliation of Income (or Loss) per Books With Income per Return. This schedule explains any differences between the net income on the company’s financial statements and the taxable income on Form 1120. For example, federal income tax expense is recorded on the books but is not a deductible expense. Other common reconciling items include differences in depreciation methods (book vs. tax) and meals or entertainment expenses that may be fully expensed on the books but are only partially deductible for tax.

The Filing and Payment Process

The deadline for filing Form 1120 depends on the corporation’s tax year. For corporations on a calendar year, the due date is April 15th. If the fiscal year ends on a different date, the return is due by the 15th day of the fourth month after its tax year ends. A corporation can obtain an automatic six-month extension by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

Corporations can submit Form 1120 by mail or electronically, but the IRS e-file system is mandated for most. Businesses that file 10 or more returns in a calendar year are required to file electronically. This threshold combines all types of returns filed by the corporation, including income tax, information, and employment tax returns.

Any final tax payment is due by the original filing deadline, even if an extension to file has been granted. A common method for payment is through the Electronic Federal Tax Payment System (EFTPS), a free service from the Treasury Department. Other options include paying by debit or credit card or sending a check or money order with Form 1120-V, Payment Voucher. If the return shows an overpayment, the corporation can choose to have it refunded or applied to the next year’s estimated tax.