Filing your business’s tax return: IRS Form 1120
September 16, 2023How to File IRS Form 1120 for Your Corporation in 2024
Are you a business owner who wants to learn how to file IRS Form 1120 for your corporation in 2024? If so, you’ve come to the right place. In this article, we’ll explain what Form 1120 is, who needs to file it, when and how to file it, and what are the common mistakes to avoid. We’ll also provide you with some helpful tips and resources to make the process easier and faster.
To help you navigate this article, we’ve created a table of contents with links to each section. Just click on the topic you want to read more about and you’ll be taken there.
What is New for Business Taxes in 2024?
- Paycheck Protection Program (PPP) Loans: If a corporation treated income from a forgiven PPP loan as tax-exempt prior to the forgiveness being granted and the forgiven amount ends up being less than the tax-exempt income previously accounted for, a prior-period adjustment is required on Schedule M-2 in the tax year the corporation is notified of the non-full forgiveness.
- Form 1099-K Reporting: There is a change in the reporting rules for Form 1099-K. For tax year 2023, the IRS postponed the implementation of the $600 reporting threshold to Tax Year 2025. This gradual transition beginning in 2023 affects how transactions involving sales and exchanges of digital assets are reported.
- New Form 1099-DA: The IRS introduced Form 1099-DA for reporting transactions involving digital assets. This form aims to provide clarity and consistency in reporting within the rapidly evolving digital asset landscape.
- Other Considerations: Corporations should be aware of additional forms that might need to be attached to Form 1120 depending on their specific circumstances, like Form 4255, Form 8611, Form 8902, and others.
What is Form 1120?
Form 1120 is the U.S. Corporation Income Tax Return. It is used by corporations to report their income, gains, losses, deductions, credits, and taxes for the tax year. Form 1120 is also used to calculate the corporation’s tax liability and pay any taxes owed.
Form 1120 consists of six pages and several schedules that may or may not apply depending on the corporation’s situation. The main sections of Form 1120 are:
- Part I: Income – This section reports the corporation’s gross income from various sources, such as sales, dividends, interest, rents, royalties, etc.
- Part II: Deductions – This section reports the corporation’s allowable deductions from gross income, such as cost of goods sold, salaries and wages, depreciation, taxes, interest, etc.
- Part III: Tax Computation – This section computes the corporation’s taxable income by subtracting deductions from income and applying the applicable tax rate. It also reports any credits or payments that reduce the corporation’s tax liability.
- Part IV: Balance Sheets per Books – This section reports the corporation’s assets, liabilities, and equity at the beginning and end of the tax year.
- Part V: Reconciliation of Income (Loss) per Books With Income per Return – This section reconciles any differences between the corporation’s income or loss as reported on its books and as reported on Form 1120.
- Part VI: Analysis of Unappropriated Retained Earnings per Books – This section analyzes the changes in the corporation’s retained earnings during the tax year.
Who needs to file Form 1120?
Generally, every domestic corporation (including S corporations) must file Form 1120 for each tax year unless it is exempt from tax under section 501 of the Internal Revenue Code. A domestic corporation is one that is incorporated or organized in the United States or under its laws.
Some examples of corporations that are exempt from tax under section 501 are:
- Charitable organizations
- Educational organizations
- Religious organizations
- Scientific organizations
- Social welfare organizations
When is Form 1120 due?
The due date for filing Form 1120 depends on the corporation’s tax year. A tax year is the annual accounting period that a corporation uses to keep its records and report its income and expenses. A corporation can have either a calendar year or a fiscal year as its tax year.
A calendar year is a period of 12 consecutive months that ends on December 31. A fiscal year is a period of 12 consecutive months that ends on the last day of any month other than December.
If a corporation has a calendar year as its tax year, it must file Form 1120 by April 15 of the following year. For example, if a corporation has a calendar year that ends on December 31, 2023, it must file Form 1120 by April 15, 2024.
If a corporation has a fiscal year as its tax year, it must file Form 1120 by the 15th day of the fourth month after the end of its fiscal year. For example, if a corporation has a fiscal year that ends on June 30, 2024, it must file Form 1120 by October 15, 2024.
If the due date falls on a Saturday, Sunday, or legal holiday, the corporation can file Form 1120 on the next business day.
How to file Form 1120?
To file Form 1120, a corporation must follow these steps (Note: We prepared an example for extra clarity below):
- Gather the necessary information and documents, such as income statements, balance sheets, receipts, invoices, etc.
- Download or order a copy of Form 1120 and its instructions from the IRS website or by calling 1-800-TAX-FORM.
- Fill out Form 1120 and any applicable schedules according to the instructions. Use black ink and write legibly or type. Round off cents to whole dollars. Attach any required forms or statements.
- Sign and date Form 1120. The signature must be that of the president, vice president, treasurer, assistant treasurer, chief accounting officer, or any other corporate officer authorized to sign. If a paid preparer is used, he or she must also sign and provide information.
- Mail or electronically file Form 1120 with the IRS. The mailing address depends on the state where the corporation’s principal business or office is located. The electronic filing option is available for most corporations through the IRS e-file system.
- Pay any taxes owed by the due date. The corporation can pay online, by phone, by mail, or in person. The payment methods and options vary depending on the amount and type of tax owed.
Example for extra clarity
Suppose you are the owner of a small business that sells handmade jewelry online. You want to file your federal income tax return using Form 1120, which is the standard form for corporations. Here are some steps you need to follow:
– First, you need to calculate your gross income, which is the total amount of money you received from your sales. Let’s say you sold 500 pieces of jewelry for $50 each, so your gross income is $25,000.
– Next, you need to subtract your cost of goods sold, which is the amount of money you spent to make and sell your products. This includes the cost of materials, labor, shipping, and other expenses. Let’s say your cost of goods sold is $10,000.
– Then, you need to subtract your other deductions, which are the expenses you incurred to run your business. This includes rent, utilities, advertising, insurance, and other costs. Let’s say your other deductions are $5,000.
– Finally, you need to apply the corporate tax rate, which is 21% for tax year 2023. This is the percentage of your taxable income that you owe to the IRS. Your taxable income is your gross income minus your cost of goods sold and your other deductions. In this example, your taxable income is $25,000 – $10,000 – $5,000 = $10,000. Your tax liability is 21% of $10,000, which is $2,100.
To summarize, you can use these numbers to fill out Form 1120:
– Line 1a: Gross receipts or sales = $25,000
– Line 2: Cost of goods sold = $10,000
– Line 28: Total deductions = $15,000
– Line 30: Taxable income = $10,000
– Line 31: Total tax = $2,100
This is a simplified example that does not include all the details and requirements of Form 1120. You should consult a tax professional or use a tax software to prepare your actual return.
Need Specialized Help with your Business Tax Return or Form 1120?
At Bottomline Tax, we want to give our readers the best information we can compile, however your specific situation as a taxpayer may exceed the contents of this article. We always recommend readers consult a tax professional in case of unresolved questions.
What are the common mistakes to avoid when filing Form 1120?
Filing Form 1120 can be a complex and tedious task. It is easy to make errors that can result in penalties, interest, audits, or delays. Some of the common mistakes to avoid when filing Form 1120 are:
- Filing late or not filing at all. This can lead to failure-to-file penalties that are equal to 5% of the unpaid tax for each month or part of a month that the return is late, up to a maximum of 25%. If the return is more than 60 days late, the minimum penalty is $435 or the balance of the tax due, whichever is smaller.
- Filing an incomplete or inaccurate return. This can lead to failure-to-pay penalties that are equal to 0.5% of the unpaid tax for each month or part of a month that the tax is not paid in full by the due date, up to a maximum of 25%. This penalty is in addition to interest charges that accrue on the unpaid tax from the due date until the payment date.
- Using an incorrect tax rate or computation method. This can lead to underpayment or overpayment of taxes and possible adjustments by the IRS. The corporation must use the appropriate tax rate and computation method based on its taxable income and filing status. For example, for tax year 2023, the corporate tax rate is a flat 21% for all corporations except for qualified personal service corporations (PSCs) that pay a flat 35%.
- Misreporting income or deductions. This can lead to understatement or overstatement of taxable income and possible audits by the IRS. The corporation must report all its income from all sources and claim only those deductions that are allowed and substantiated by records. For example, some common income items that are often overlooked are interest income from bank accounts or bonds, dividends from stocks or mutual funds, rents from real estate properties, etc. Some common deductions that are often misclaimed are personal expenses that are not related to business activities, entertainment expenses that are not ordinary and necessary for business purposes, depreciation expenses that are not calculated correctly according to IRS rules, etc.
- Not keeping proper records or documentation. This can lead to difficulty in preparing and filing Form 1120 and possible audits by the IRS. The corporation must keep accurate and complete records of its income and expenses for at least three years from the date of filing or the date the return is due, whichever is later. The records must include receipts, invoices, canceled checks, bank statements, journals, etc. The records must support the amounts reported on the return and show the sources and uses of funds.
What are some resources to make filing Form 1120 easier and faster?
Filing Form 1120 can be a challenging task, but with some planning and preparation, you can make it easier and faster. Here are some additional resources you can use to learn more about Form 1120 and get help if you need it:
