IRS Form 1020 vs. Form 1120: What You Need to Know

A common source of confusion for business taxes is the search for “IRS Form 1020.” The Internal Revenue Service (IRS) does not have a form with this number; individuals are almost certainly looking for Form 1120, the U.S. Corporation Income Tax Return. This is the document C corporations use to report income, gains, losses, deductions, and credits, all of which determine the final tax liability.

Who Is Required to File Form 1120

The requirement to file Form 1120 applies specifically to domestic C corporations. This includes any business that is legally incorporated under the laws of any state and is recognized as a separate taxable entity from its owners. A corporation must file this return annually, regardless of whether it had taxable income, and even if it is in bankruptcy. The filing obligation begins when the corporation is formed and continues as long as it exists.

Other business structures do not use this form. S corporations, for instance, file Form 1120-S, which reports income that “passes through” to shareholders’ personal returns. Partnerships file Form 1065, and sole proprietorships report business income on Schedule C, which is attached to their personal Form 1040.

Limited Liability Companies (LLCs) present a unique case. By default, the IRS treats a multi-member LLC as a partnership and a single-member LLC as a sole proprietorship. However, an LLC can elect to be taxed as a C corporation by filing Form 8832, Entity Classification Election. If an LLC makes this choice, it becomes responsible for filing Form 1120 annually.

Information and Records Needed for Preparation

To complete Form 1120, a corporation must gather a comprehensive set of documents and data. This includes the corporation’s legal name, address, Employer Identification Number (EIN), date of incorporation, and the total assets held by the corporation at the end of the tax year.

Corporations must compile records for all income sources. This involves documenting gross receipts from sales and any returns or allowances provided to customers. Other income sources include:

• Cost of Goods Sold (COGS)
• Dividends received from other corporations
• Interest earned from bank accounts or investments
• Income from rent or royalties
• Capital gains and losses from the sale of assets, which are reported on Schedule D (Form 1120)

Equally detailed records are needed for all business expenses and deductions. For some items, like depreciation of assets, specific calculations are necessary using Form 4562, Depreciation and Amortization. Common deductions include:

• Compensation of officers, salaries, and wages
• Repairs and maintenance
• Bad debts written off
• Rent paid for business property
• Taxes and licenses
• Interest paid on business loans

Finally, the corporation must prepare a complete balance sheet for the beginning and end of the tax year. This information is entered on Schedule L of Form 1120 and requires a detailed breakdown of all assets, liabilities, and stockholders’ equity.

Calculating Corporate Taxable Income

The calculation of taxable income on Form 1120 follows a direct formula: gross income minus allowable business deductions equals taxable income. The process begins by determining the corporation’s total income. This is achieved by subtracting the Cost of Goods Sold (COGS) from gross receipts and then adding other income from sources like interest, dividends, and rent.

Once total income is established, the next step is to subtract all ordinary and necessary business deductions. These are the costs incurred in the course of running the business, and the IRS allows a wide range of expenses to be deducted. The sum of these deductions is subtracted from gross income.

This result is the corporation’s taxable income before considering special items, such as the deduction for net operating losses (NOLs) carried forward from prior years. After accounting for any such items, the final figure represents the corporation’s taxable income. The tax liability is then determined by applying the flat 21% federal corporate income tax rate to this amount.

Filing Deadlines and Submission Procedures

For a corporation that uses the calendar year as its tax year, the deadline for filing Form 1120 is April 15. The due date is the 15th day of the fourth month following the end of the corporation’s tax year. For example, a corporation with a fiscal year ending on June 30 must file its return by October 15.

If a corporation cannot meet this deadline, it can receive an automatic six-month extension to file. To obtain this extension, the corporation must submit Form 7004 by the original due date of the return. This is only an extension of time to file, not an extension of time to pay any tax owed. A corporation must still estimate its tax liability and pay the amount due by the original deadline to avoid potential penalties and interest.

The IRS provides two primary methods for submitting Form 1120: electronic filing and mail. The IRS encourages electronic filing and mandates it for corporations that file 10 or more returns of any type during the year. E-filing can be done through IRS Free File or commercial tax software. For smaller corporations not required to file electronically, submitting a paper return by mail is an option. Corporations should consult the official IRS instructions for Form 1120 to find the precise mailing address applicable to their specific circumstances.