Understanding Form 1120 for Small Businesses

Every entrepreneur needs to know how to navigate the complexity of business taxes. If your small business is a C-corporation, it’s critical for you to understand Internal Revenue Service (IRS) Form 1120. Also referred to as the U.S. Corporation Income Tax Return, Form 1120 is the IRS document that C-corporations use to report their income, gains, losses, deductions, and credits, as well as to calculate their federal income tax liability.

Looking for some guidance to help make sense of this form? We’re here to provide just that. 

What is Form 1120?

Form 1120 is specifically designed for C-corporations to report their annual financial activities to the IRS. It includes various schedules that detail the corporation’s income, deductions, and credits, which ultimately determine the amount of federal income tax the corporation must pay.

Who Needs to File Form 1120?

If your business is registered as a C-corporation, you are required to file Form 1120, regardless of your business's income or loss during the tax year. This is distinct from other business structures, such as S-corporations or limited liability companies (LLCs), which typically file different forms (like Form 1120-S or Form 1065, respectively).

When is Form 1120 Due?

The deadline for filing Form 1120 is typically the 15th day of the fourth month following the end of the corporation's tax year. For corporations operating on a calendar year, the due date is usually April 15th. However, if the due date falls on a weekend or holiday, the deadline is moved to the next business day.

Key Sections of Form 1120

Understanding each section of Form 1120 is crucial for accurate and complete tax filing. Let's break down some of the key sections.

Income

The income section of Form 1120 is where the corporation’s gross receipts or sales are reported, along with returns and allowances, which are deducted to determine the organization’s gross income. Other sources of income, such as dividends, interest, rents, and royalties, are also reported in this section.

Deductions

Corporations are allowed to deduct ordinary and necessary business expenses, and these are reported in the deductions section of Form 1120. These deductions include salaries and wages, repairs and maintenance, rent, taxes, interest, and other operating expenses. Depreciation and depletion allowances are also included in the deductions section.

Tax, Refunds, and Payments

This section is where corporations calculate their income tax liability. It accounts for credits and payments already made throughout the tax year, such as estimated tax payments or federal tax deposits, and determines whether the corporation is due a refund or must make an additional payment.

Completing Form 1120

Completing Form 1120 accurately requires careful record-keeping and a clear understanding of applicable tax laws. Key steps include: 

Step 1: Gathering Financial Statements

Before you start filling out Form 1120, ensure that you have all your financial statements ready, with complete data through year-end. These include your company’s income statement, balance sheet, and any other relevant financial documentation for the tax year.

Step 2: Filling in Basic Corporate Information

The first part of Form 1120 requires basic information about your corporation, such as the company’s name, address, Employer Identification Number (EIN), and date of incorporation.

Step 3: Report Income and Deductions

You’ll need to use information from your company’s financial statements to report the corporation's income and deductions accurately. This information is necessary in order to calculate the organization’s taxable income.

Step 4: Calculate Taxable Income

After accounting for all income and deductions, you will be able to use the details on the form to determine your organization's taxable income. You will need to use this figure to determine your business's tax liability.

Step 5: Calculate Tax Liability and Credits

Use the schedules provided in Form 1120 to calculate your company’s tax liability. Be sure to consider any tax credits the corporation may be eligible for, as these can help to reduce your overall tax burden.

Step 6: Sign and File the Return

After double-checking that all the information on Form 1120 is correct, an authorized corporate officer must sign the form. You can then file Form 1120 electronically or by mail.

Common Form 1120 Mistakes to Avoid

Filing corporate taxes can be complex, and errors can lead to penalties or delays. Common mistakes to watch out for include:

• Incorrect Information: Double-check all entries for accuracy, including the EIN, tax year date, and monetary figures.

• Overlooking Deductions: Make sure to claim all legitimate business deductions to lower your taxable income.

• Missing Deadlines: Mark your calendar with the due date to avoid missing the filing deadline and incurring late filing penalties.

• Not Reporting All Income: Ensure that all income, including any from foreign sources, is reported.

Frequently Asked Questions

What is the difference between Form 1120 and Form 1120-S?

Form 1120-S is used by S-corporations, which are pass-through entities. With this business structure, the income and losses pass through to the shareholders' personal tax returns. Form 1120 is for C-corporations, which are taxed separately from their owners.

Can I file Form 1120 online?

Yes, corporations can file Form 1120 electronically using the IRS e-file system. The IRS encourages taxpayers to file electronically, as this method is more efficient than mailing in paper copies. 

What if I need more time to file Form 1120?

If you need more time to prepare your Form 1120, you can file Form 7004 to request an automatic six-month extension.

Key Tax Form for C-Corporations

Form 1120 is not just another piece of paperwork; it's a fundamental component of corporate tax responsibilities for C-corporations of all sizes. By understanding and accurately completing Form 1120, you are keeping your small business compliant with federal tax law and positioning your organization for financial health.  A well-informed approach to Form 1120 can contribute to the sustained success of your business, though it’s always important to consult with a tax professional for personalized advice and to ensure compliance with current tax regulations.

How Justworks Can Help

Maintaining accurate financial records is an important key to staying in compliance with tax regulations. Justworks’ HR software not only encompasses the administrative and compliance aspects of payroll processing and payroll tax filings but also seamlessly integrates with top accounting software and other HR tools to facilitate easy access to the accurate data you need to stay on top of your corporate tax filings. Get started with Justworks today!