All domestic C corporations (C-corps) must file IRS Form 1120, U.S. Corporation Income Tax Return, unless they are exempt from paying taxes as a qualified nonprofit organization under Section 501. Corporations must file Form 1120 every year they are in business, even if they don’t have any taxable income.
Form 1120 is due on April 15, following the end of the corporation’s tax year this year. If you don’t turn in this form by the deadline, including any extensions, you could face penalties and interest. If a return is late by more than 60 days, the minimum penalty is the amount of tax owed or $450 for returns due in 2023.
If you need more time to complete your return, you can do so by requesting an automatic extension using IRS Form 7004. It extends the time to file the form but not to pay the tax you estimate will be due.
We’ve made a sample profit and loss (P&L) statement and balance sheet, which you can see below, to help you better understand how to file Form 1120. You might also want to keep the Form 1120 instructions from the IRS close by as we fill out the form to help you with your corporation’s tax return. Just so you know, we won’t go over every line of every form and schedule, but some of the most frequently used lines will be highlighted.
Step 1: Collect the Required Information
Whether you decide to use a tax professional, use tax software, or complete this form by hand, you’ll need your corporation’s financial information and documentation to complete Form 1120. Much of this information can be found on your prior-year tax return:
- Details about your corporation: This includes the name of the business, the date of incorporation, the date of the election to be treated as a corporation, your employer identification number (EIN), and your mailing address.
If the corporation has not received its EIN by the time the return is due, enter “Applied For” and the date the corporation applied in the space for the EIN. If you need help acquiring one, read our guide on how to get an EIN.
- Tax year: You need to know if you’re filing on a calendar year or fiscal year. This must match your prior-year return unless you ask the IRS permission to change it.
- Business activity: A description of the business activity of the C-corp, the main product or service you offer, and the business activity code that reflects your industry. You can find a complete list of the business activity codes on page 28 of the IRS’s instructions for Form 1120.
- Shareholder information: This includes the names, addresses, tax identification numbers (TINs), and percentage of ownership for every shareholder. Ask shareholders to provide you with IRS Form W-9 as well.
- Accounting method: There are two ways to keep track of money: cash and accrual. You must use the same accounting method as the prior year unless the IRS gives you permission to change. Check out our guide on the cash vs the accrual method to learn more.
- Profit and Loss (P&L) statement: This financial report is a summary of the corporation’s income and expenses for the year. If you are in need of an income statement, you can quickly and easily make a P&L report in QuickBooks—read our guide on how to run a P&L report on QuickBooks for guidance.
- Balance sheet report: This financial statement summarizes all assets, liabilities, and owner’s equity as of the end of the tax year. If you use QuickBooks, running a balance sheet report in QuickBooks Online takes a couple of minutes.
- Fixed asset purchases report: If you kept this information in digital format, you should print out a report showing the details of every purchase of equipment, machinery, buildings, vehicles, and other fixed assets. This information is necessary when figuring out how much the C-corp can deduct for depreciation, bonus depreciation, and section 179 expense this year. You’ll need to know when the equipment was bought and when it was first used for business. You’ll also need to know how much it cost, if there were any installation costs or major improvements, and what kind of equipment or asset it is.
- Payroll expense report: You should also print out a report showing compensation paid to the officers of the C-corp. This detail is necessary because compensation for officers is reported on a separate line item from salaries and wages paid to other employees.
- Capital accounts: Create a detailed list of all transactions that affect the capital accounts of the shareholders, such as capital contributions, distributions, dividends, and buyouts.
- Loans: Create a complete record of every financial transaction involving shareholder loans and repayments, including any interest paid or received.
- Forms 1099: If your corporation paid an independent contractor or freelancer during the year, you may need to report the payment on your Form 1120. Our guide on Form 1099 reporting can help you figure out if you’re required to issue any 1099s.
Step 2: Complete the General Information Section
You may wish to download IRS Form 1120 from the IRS website to follow along with this guide.
- Initial return: If this is your corporation’s first tax return, write the date it was formed where it says “tax year beginning” at the top of Form 1120. You should also mark the box for initial return in item E. (1). This date should match your corporation’s date of incorporation in item C.
- Item B: Enter your corporation’s EIN assigned by the IRS in this section or “Applied For” if you’ve applied but haven’t yet received your number.
- Item D: Enter the total assets of your corporation. You’ll need to have your balance sheet handy to complete this section. Our sample company has $35,587 in total assets at the end of the year according to our balance sheet provided above.
Step 3: Fill Out Income & Deductions Section
You must list your corporation’s income and deductions on the first page of Form 1120. We have completed Lines 1a through 37 using the example P&L statement of our fictitious C-corp above.
Fill out every applicable entry space on Form 1120. Do not enter “See attached” or “Available upon request” in the blanks. If more space is required on the forms or schedules, then attach separate sheets that are the same size and format as the printed forms.
- Income: Line 1a is where you’ll enter the sum of all of your business’s activities. Don’t include the amounts that must be reported on lines 4–10. Line 1a is also where you list any advance payments your business got during the tax year (if you use the accrual method do not include advance payments). See the instructions for IRS Form 1120 for more information on what income to put on Line 1a.
- Gross Profits: Line 3 is reserved for gross profits; this is line 1 minus line 2.
- Interest Income: On line 5, write down the taxable interest on United States obligations, loans, notes, mortgages, bonds, bank deposits, corporate bonds, tax refunds, and more.
- Gross Rents: On line 6, write down the gross amount of rent you get from your rental property. Report any deductions related to the rent along with your other deductions on lines 12 through 26.
- Interest Expense: Enter your corporation interest expense on line 18. Business interest is deductible for corporations with less than $27 million in gross receipts. Corporations with gross receipts in excess of this may be subject to an interest limitation.
- Charitable contributions: On line 19, enter the amount that your business gave to charity. In general, the total amount claimed can’t be more than 10% of taxable income (line 30) if certain deductions aren’t taken into account (see IRS’s instructions on page 13 for specifics).
- Depreciation: On line 20, enter depreciation and the cost of certain property that the company chose to write off under Section 179, as calculated on Form 4562. Include any amounts that were not claimed on Form 1125-A or anywhere else on the return. For more on depreciation, read our guides on how to calculate straight line depreciation and what the Section 179 deduction is.
- Other Deductions: On line 26, enter any other deduction that is not deductible elsewhere on Form 1120.
- Taxable Income: On line 30, enter the corporation’s taxable income.
In general, a corporation can only deduct 50% of the amount that would otherwise be allowed for meals that are unrelated to entertainment and are paid for or incurred as part of its trade or business. However, the corporation can deduct 100% of business meal costs if the food and drinks come from a restaurant. This only applies to amounts paid or incurred in 2021 and 2022. For more on this topic, see our in-depth guide on the meals and entertainment deduction.
Step 4: Complete Schedule C—Dividends, Inclusions & Special Deductions
Schedule C is used to report dividends, interest, and any other income from corporations in which your corporation has an ownership interest. If your corporation doesn’t own stock in other corporations, you can skip this section. In our example, ABC Company did not get any dividends, so the fields on this form will be left blank. However, if your company has amounts to report, please read this section.
- Line 1, Column (a): Enter dividends from corporations in which your company owns less than 20% on Line 1, Column (a) (except those received on certain debt-financed stock acquired after July 18, 1984).
- Line 5, Column (a): Enter dividends received on preferred stock of 20%-or-more-owned public utility that is subject to income tax and is allowed the 26.7% deduction provided in sections 244 and 247.
- Line 10, Column (a) and (c): Report dividends from domestic corporations that are subject to income tax, even though the full amount of these dividends can be deducted. To get the 100% deduction on line 10, column (c), the company must include with its tax return a statement that it was a federal licensee under the Small Business Investment Act of 1958 at the time.
Step 5: Complete Schedule J—Part I & Part II
Schedule J is used to figure your tax liability based on the income and deductions reported on page 1. Corporations pay federal corporate income taxes at a flat rate of 21%. ABC Company’s tax liability is its taxable income from page 1 of $20,900 times 21%, or $4,389.
5a. Figure Schedule J—Part III
Part III of Schedule J is used to figure out payments or refundable credits. You should pay close attention to this section if you made estimated tax payments during the year.
- Estimated Tax Payments: On line 14, enter any estimated tax payments made during the year. For the purpose of our example, ABC Company did not make any estimated tax payments. Thus, it will pay the taxes it owes when the corporation files its tax return.
- Total Payments and Credits Due: On line 23, enter the total amount of your payments or credits.
Step 6: Complete Schedule K—Other Information
All corporations must fill out Schedule K. This schedule may be easier to complete than other schedules since many of the questions are yes or no.
- Line 4b: If certain entities, individuals, and estates that own, directly, 20% or more, or own, directly or indirectly, 50% or more of the total voting power of all classes of the corporation’s stock entitled to vote, your corporation must also complete Schedule G. It is used to disclose who the beneficial shareholders of the corporation are.
- Line 7: If any Foreign Person owns more than 25% of stock in the corporation, you need to include IRS Form 5472. If you do have foreign owners be sure not to miss this form, it is an automatic $25,000 penalty if you have foreign owners of US corporate stock and fail to include this information.
- Line 10: Enter the number of shareholders on line 10, for the purpose of our example, we only have 1 shareholder, but your corporation may have more.
- Line 12: If you have a net operating loss (NOL) carryover from a prior year, enter it here.
- Gross Receipts of $250,000 or less: On Line 14, mark “yes” if your company made less than $250,000 in sales. This question is important because the answer will tell you if your company needs to fill out Schedules L, M1, and M2. ABC Company made less than $250,000, so it doesn’t have to fill out those parts of Form 1120. However, we will fill them out anyway to illustrate how your profit and loss must agree with your balance sheet for your tax return to balance.
- Payments made by the corporation: On line 15a, list any payments your business made to independent contractors or freelancers that required you to fill out a Form 1099-NEC.
Step 7: Complete Schedule L—Balance Sheets per Books
The balance sheets should match the books and records of the business. If the “Yes” box on Schedule K, question 13, is checked, then corporations with total receipts (page 1, line 1a plus lines 4–10) and total assets at the end of the tax year of less than $250,000 do not have to fill out Schedules L, M-1, and M-2.
Follow along as we input our data from our sample balance sheet.
Step 8: Complete Schedule M-1 Reconciliation of Income (Loss) per Books With Income per Return
Schedule M-1 is used to reconcile your books against your tax return. A book-to-tax reconciliation is the process of matching the net income on the books to the income on the tax return by adding and subtracting the non-tax items. To do a book-to-tax reconciliation, you must find the income and deduction items that are different between the book and the tax return.
Even though we have filled out Schedule M-1, this form will not always be used.
- If the “Yes” box on Schedule K, question 13, is checked, then corporations with total income (page 1, line 1a plus lines 4–10) and total assets at the end of the tax year of less than $250,000 do not have to fill out Schedules L, M-1, or M-2.
- Corporations with total assets non-consolidated (or consolidated for all corporations included within the consolidated tax group) of $10 million or more on the last day of the tax year must file Schedule M-3 (Form 1120) instead of Schedule M-1.
Step 9: Complete Schedule M-2—Analysis of Unappropriated Retained Earnings per Books
For the purpose of our example in this tax return, we will still fill out the schedule because it’s important to ensure your books match your tax return. Schedule M-2 looks at the books’ unallocated retained earnings. It is important in business because it tells you how much money your business has that isn’t set aside for a specific purpose.
How To Assemble Form 1120
If you have any of the following forms, attach all applicable schedules and forms after Form 1120 and Form 1120 schedules according to the sequence number on the top right corner of the form. For instance, Form 4797 has an Attachment Sequence No. 27.
If you have any supporting statements or attachments, put them in the same order as the schedules or forms they support, and attach them last. Show the totals on printed forms. On each supporting statement or attachment, include the name and EIN of the corporation.
Frequently Asked Questions (FAQs)
If you have already filed Form 1120 and need to make changes, you will need to use Form 1120-X, Amended U.S. Corporation Income Tax Return to correct a previously filed Form 1120.
A corporation that fails to pay the tax when it is due may be fined 1/2 of 1% of the unpaid tax for each month or part of a month that the tax is not paid, up to a maximum penalty of 25% of the unpaid tax. If you fail to file, the penalty is 5% of the unpaid taxes for each month or part of a month that the tax return is late, not to exceed 25% of your unpaid taxes.
A C-corp that has dissolved generally must file by the 15th day of the fourth month after the date it dissolved. Additionally, if this is the corporation’s final Form 1120 return, you should check the “Final return” box in the return in item E.
The income, gains, losses, deductions, and credits of a corporation, as well as the amount of income tax that must be paid, must all be reported and calculated by the United States Corporation Income Tax Return using Form 1120. You can start your return by downloading IRS Form 1120 and filling it out by hand, or you can do it all electronically to have it complete in time for the filing date.