The 1120 tax form is an essential document for U.S. businesses. Especially the firms that report their deductions, incomes and tax liabilities directly to the Internal Revenue Service (IRS). In this article, we provide in-depth information about the 1120 form, who it is essential for, who needs to file it, its overall structure and how to submit and complete it. So whether you own a business, are an accountant, or are looking to understand tax filings in the corporate world, this piece of content will be highly beneficial for you.

Understanding form 1120 and the need to file

The Form 1120 tax form is utilized by corporations to file their income tax return directly to the IRS. This form is also called the “U.S. Corporations Income Tax Return” and is mandatory for all types of corporations. This includes C corporations, foreign corporations and domestic corporations as well. This form includes all the details about a corporation’s gains, losses, income, deductions, and tax liability, thus providing the IRS with a detailed overview of a business corporation’s annual financial proceedings.

However, C corporations are obliged to pay double taxation, which means that they have to pay taxes on their income. Furthermore, when the profits are imbursed to the shareholders as allowances, then those shareholders are taxed a second time. Therefore, form 1120 is a way for these firm to report their income and depict how much taxes they actually owe. The tax rate for a C corporation is capped at 21%, but this can be subject to change depending on the circumstances and tax laws.

Who needs to file form 1120?

The form 1120 is a mandatory requirement for all the C corporations that have their business operations in the U.S.

These are all the corporations that have business proceedings in the United States and the overseas corporations that have business operations in the United States as well. There are some exceptions like:

C corporations ( Domestic )

Many C corporations that have their operations in the U.S are required to file form 1120, even those that don’t have the taxable income. It is mandatory for large and small corporation and those corporations that have little to no activity are also required to file this form and provide reports about their business status.

Foreign Corporations

Foreign corporations that undertake their business operations in the U.S. are required to file form 1120-F, this form is a variations of the form 1120 which is formulated for foreign corporations specifically.

Exemptions (form 1120-s)

Form 1120-s

Some corporations are not liable for filing Form 1120. This includes the S corporations who have to file form 1120s instead. Also, LLCs (limited liability companies) are tax-filed as partnerships.

Small startups that meet specific criteria can also fill out easier forms like the 1065.

Additionally, form 2553 is a form that can be filled by a corporation to elect them as an S corporation.  In short, the form 2553 can be used to transform a corporation into an S-corporation.

Corporations that are non-profit organizations

Non-profit organization don’t require to the fulfilment of the form 1120. They are exempt from paying income taxes as well, however, they must file form 990.

Essential aspects of the corporate tax form 1120

There are several essential things in the multiple sections of this form that the corporation must adhere to. These are important in terms of how to use Form 1120 and business tax purposes as well. Let’s discuss them:

How to use Form 1120 for your tax period

• The legal name and address of the corporation are required.
• An employer identification number is essential; it is a unique number assigned by the IRS for the identification of the corporation.
• An incorporated data is needed that depicts when the corporation was legally created.
• An accounting period in which the corporation’s tax payment, tax credit, and estimated tax are recorded for a tax year. This is required for the due date for taxes.
• Another vital tax element is the business activity code, which recognizes the type of activities that are carried out in the business.

Income Section

The income section of this form includes all the earnings or incomes of a year for a corporation. This includes:

• Salaries and wages are termed as compensation to employees.
• Depreciation is a deduction for the usage of business assets like equipment provided to employees, office space equipment, etc.
• Interest rates are paid as interest payments on business debts or loans.
• Lease and rent payments that are related to leasing business property endeavours.
• Advertising and marketing costs are used to promote the business.
• Debts that are termed as outstanding or unpaid from the customers.

Income that is taxable

This section includes the taxable income. After providing all the income and deductions, the corporation will come to a conclusion in terms of the taxable income. This is the exact amount that is subject to taxation. To find this amount, you need to subtract the deductions from the gross income of the corporation. The figure that is now obtained can be termed as the corporation’s income, which is termed as corporate income on which the taxes are filed.

Tax Return Calculation

Any corporations income tax liability is estimated based on the taxable income. The corporate tax rate is 21% as governed by the tax cuts and jobs act of 2017. There are however, other taxes like the alternative minimum tax (AMT) and other relevant taxes for which the submission is dependent upon the type of operations carried out at the firm.