Form 1120-S: U S. Income Tax Return for an S Corporation

A penalty may be assessed if the return is filed after the due date (including extensions) or the return doesn’t show all the information required, unless each failure is due to reasonable cause. If tax is due, the penalty is the amount stated above plus 5% of the unpaid tax for each month or part of a month the return is late, up to a maximum of 25% of the unpaid tax. The minimum penalty for a tax return required to be filed in 2024 that is more than 60 days late is the smaller of the tax due or $485. If the preceding tax year was less than 12 months, the estimated tax must be determined under (a).

1. These codes are identified in these instructions and on the List of Codes in the Shareholder’s Instructions for Schedule K-1 (Form 1120-S).
2. The boxes must use the same numbers and titles and must be in the same order and format as on the comparable IRS Schedule K-1.
3. Enter the total debts that became worthless in whole or in part during the tax year, but only to the extent such debts relate to a trade or business activity.
4. See the separate Instructions for Schedule M-3 (Form 1120-S) for provisions that also affect Schedule L.

How to pay less taxes

Enter on line 16b all income of the corporation exempt from tax other than tax-exempt interest (for example, life insurance proceeds, but see section 101(j) for limits and reporting requirements). The shareholders must figure their oil and gas depletion deductions and preference items separately under section 613A. Enter items of income and deductions that are adjustments or tax preference items for the AMT. For more information, see Form 6251, Alternative Minimum Tax—Individuals, or Schedule I (Form 1041), Alternative Minimum Tax—Estates and Trusts. Attach a statement to Schedule K-1 that provides the source credit information and the pro rata share of eligible credits received from transferor(s), including any share of eligible credits from transferor(s) that were received from another pass-through entity.

The worksheet line 5—$36,000 amount is the total of the Schedule K, line 2 loss of ($3,000), line 12a (code A) deduction of $24,000, line 12d (code ZZ) deduction of $3,000, and the line 16c nondeductible expenses of $6,000. The AAA at the end of the tax year (figured without regard to distributions and the net negative adjustment of $6,000) is zero, and distributions can’t reduce the AAA below zero. If the corporation wants to forego distributions of PTEP, it may elect to do so with the consent of all its affected shareholders (section 1368(e)(3)(B)).

Unused investment credit from the qualifying advanced energy project credit allocated from depreciation tax shield calculation cooperatives (code Q). Unused investment credit from the qualifying advanced coal project credit or qualifying gasification project credit allocated from cooperatives (code P). See section 40(f) for an election the corporation can make to have the credit not apply. An accrual basis S corporation can’t elect to treat a contribution as having been paid in the tax year the board of directors authorizes the payment if the contribution isn’t actually paid until the next tax year. Enter capital gain property contributions subject to the 20% AGI limitation. Enter capital gain property contributions subject to the 30% AGI limitation.

How To Complete Form 1120S & Schedule K-1 (+Free Checklist)

This charitable deduction may be denied if the corporation does not comply with section 170(f)(19). A $500 filing fee may apply to certain deductions over $10,000. Gambling gains and losses subject to the limitations in section 165(d). Indicate on an attached statement whether or not the corporation is in the trade or business of gambling. If there was real accounts vs. nominal accounts a gain (loss) from a casualty or theft to property not used in a trade or business or for income-producing purposes, notify the shareholder.

Each shareholder will determine if they qualify for the exclusion. The corporation doesn’t need IRS approval to use a substitute Schedule K-1 if it is an exact copy of the IRS schedule. The boxes must use the same numbers and titles and must be in the same order and format as on the comparable IRS Schedule K-1. The corporation must provide each shareholder with the Shareholder’s Instructions for Schedule K-1 (Form 1120-S) or instructions that apply to the specific items reported on the shareholder’s Schedule K-1. If the S corporation disposed of any digital asset that was held as a capital asset, through a sale, trade, exchange, payment, or other transfer, use Form 8949 to calculate the capital gain or loss and report that gain or loss on Schedule D (Form 1120-S).

📌 Compliance With IRS Requirements:

See Form 8990, Limitation on Business Interest Expense Under Section 163(j), and its instructions for more information. The limitation applies at the S corporation level, and any excess business interest expense is carried over at the corporate level. Report amounts paid for health insurance coverage for a more-than-2% shareholder (including that shareholder’s spouse, dependents, and any children under age 27 who aren’t dependents) as an information item in box 14 of that shareholder’s Form W-2. A more-than-2% shareholder may be allowed to deduct such amounts on Schedule 1 (Form physical presence 1040), line 17.

EXPLAIN THE RULES TO CLIENTS

The form can be filed electronically or by mail and must be accompanied by Schedule K-1. This schedule identifies individual shareholders in the S corporation along with the portion of income, profit, loss, tax credits, and deductions that are allocated to each of them. This includes the pro rata share of W-2 wages and UBIA of qualified property reported to the S corporation from any qualified trades or businesses of an RPE the S corporation owns directly or indirectly. Shareholders who actively participate in a rental real estate activity may be able to deduct part or all of their rental real estate losses (and the deduction equivalent of rental real estate credits) against income (or tax) from nonpassive activities. Generally, the combined amount of rental real estate losses and the deduction equivalent of rental real estate credits from all sources (including rental real estate activities not held through the corporation) that may be claimed is limited to $25,000. In general, section 469 limits the amount of losses, deductions, and credits that shareholders can claim from “passive activities.” The passive activity limitations don’t apply to the corporation.

It must also determine whether it has qualified PTP items from an interest in a PTP. It must indicate the status in the appropriate checkboxes for each trade or business (or aggregated trade or business) or PTP interest reported. It must also report the line 2 amounts to its shareholders. In box 17 of Schedule K-1, enter code D followed by an asterisk and enter “STMT” in the entry space for the dollar amount. The S corporation has claimed an amount on page 1, line 24d, which is treated as tax-exempt income for purposes of S corporation allocations.