Internal Revenue Service (IRS) Form 1120S is the U.S. income tax return for an S Corporation. It is filed as part of Schedule K-1 on which the income or losses and dividends of a partnership or an S corporation’s shareholders are reported. To be eligible to file Form 1120S, the corporation must attach to the Form 1120S — or have previously filed and had accepted by the IRS — Form 2553, Election by a Small Business Corporation. A Form 1120S is prepared for each S corporation shareholder to designate the percentage of shares owned by each. The IRS uses this information to determine the percentage of income or loss to assign to each shareholder to calculate taxes owed.
An S corporation, which qualifies to be taxed under Chapter 1, Subchapter S, of the IRS code, is exempt from paying federal income tax on all but certain types of income. The S corporation passes profits or losses directly to shareholders who then are taxed at their respective individual rate when they file IRS Form 1040. The S corporation has the option of distributing profits in the form of dividends or retaining profits to grow the company. Regardless of whether they are distributed or retained, profits are treated as distributed for IRS tax purposes. This means that shareholders may be taxed on income that they do not actually receive.
S corporations are required to file Form 1120S annually. The deadline is the 15th day of the third month following the close of the corporation’s tax year. It must be signed by all corporate officers with signatory authority. A six-month extension to file may be requested by submitting IRS Form 7004.
Sometimes S corporations dissolve or revert to C corporation status. If an S corporation dissolves, Form 1120S must be filed by the 15th day of the third month following dissolution. For S corporations that revert to C corporation status mid-year, Form 1120S must be filed by the due date of the C corporation’s partial-year return.
Most 1120S forms are filed electronically. S corporations that file more than 250 1120S forms and have at least $10 million in assets may be required by the IRS to file electronically but can request a waiver of the requirement if special circumstances apply. Electronic filing is not an option when the S corporation’s return includes precomputed penalty and interest, the return is filed late, it includes late payments, or it includes a request to apply an overpayment to another account.