Important Form 1120 Attachments:
- Schedules N, D, and O
- Forms 4626, 8050, 1125-A, 4136, 8941, and 3800
- The other schedules (alphabetically)
- Other forms (numerically)
- Required statements
Form 1120 is an IRS tax form and is used to file income tax returns for huge corporations. The income, deductions, gains, losses, etc., are all entered in this form. Basically, it is used to understand how much income tax liability a corporation has. Most corporations file this form electronically. It is supposed to be filed before April 15th, at the end of the tax year. A lot of other forms and related Schedules need to filed along with this form; hence, the process can be complicated, confusing, and rather tedious. The article below will tell you how to fill out Form 1120.
Instructions to Fill Form 1120
The instructions to fill Form 1120 are given below:
- Go through the form once. It consists of 5 pages, so gather your patience and just give a quick read.
- To begin with, you will encounter a box on the top of the form. You need to fill out your personal data in this form - name and address.
- Now, glance over to the left of the box, where you will encounter a multi-choice check-box labeled A.
- As a corporation, if you need to file a consolidated income tax return, check 1(a). This requires you to attach the Affiliations Schedule, Form 851.
- If it is a non-consolidated return, check 1(b).
- If you are a personal holding corporation, a personal service corporation, or a corporation with total assets more than USD 10 million, you need to check boxes 2, 3, or 4.
- Accordingly, you need to fill and attach Schedule PH or M-3.
- On the extreme right of the form, you need to write the employee identification number (on line B), incorporated date (on line C), and the total assets of the corporation (on line D).
- Accordingly, you need to check box E regarding the initial return, final return, etc.
- The next set of instructions are related to your income.
- On line 1(a), enter the gross receipts or sales from your business operations (exclude the ones from line 4 to 10).
- Line 1(b) will contain your returns and allowances, i.e., the refunds and rebates made on the merchandise.
- Now, subtract this value from the gross receipt amount and enter the result on line 1(c).
- Line 2 contains the amount of cost of goods sold. If it is applicable for you, write the amount from line 8 of Form 1125-A and attach the same.
- Subtract the value on line 2 from line 1(c) and enter the result on line 3.
- The value on line 4 is taken from Schedule C , the instructions of which are given further below.
- On line 5, you have to fill the taxable interest on loans, mortgages, and bonds.
- If the corporation holds rental amounts, fill the gross rent value on line 6.
- Line 7 contains the gross royalties received by the company. On line 8, you have to fill the capital gain net income. For this, you have to fill Schedule D of Form 1120 (it is a separate form) and attach it with this form.
- Any other expense that has not been included will be included on line 10, i.e., debt recovery, income from another trade, tax refunds, etc. Accordingly, you need to attach the relevant documents.
- Add all the values from lines 3 to 10. Enter the result on line 11 and proceed to the next section.
- The next section consists of deductions.
- Line 12 must contain the deductible officers' compensation. You have to attach Form 1125-E for this.
- Line 13 contains the staff salaries.
- On lines 14 to 24, you need to enter other deductions, which include repairs, debts, rents, taxes, interest (only on the loan that has served a dual purpose), charity, depreciation (if not claimed in Form 4562), depletion, marketing funds, pension, and benefits, respectively.
- Refer to Form 8903 and enter any deduction that has occurred on domestic production activities on line 25.
- Any deduction excluding the above has to be entered on line 26.
- Add the values between lines 12 to 26 and enter the result on line 27. Subtract this value from line 11 and enter the result on line 28. This is the taxable income before the NOL (net operating loss) deduction.
- The NOL deduction is used to reduce taxable income for another tax year. You can enter any NOL carryover from the previous years. Do not let the amount be more than the taxable income though.
- Enter the value on line 29(a). Line 29(b) needs a reference from Schedule C. This needs to be added to the value on line 29(a), and the result must be entered on line 29(c).
- Subtract the value on line 29(c) from line 28. Enter the value on line 30. This is the taxable income.
- Lines 31 and 32 contain the total tax value and the refundable credits, respectively. They are to be borrowed from Schedule J of this form.
- Line 33 contains the tax penalty. This is normally not required for a corporation as the IRS figures out this value. Nevertheless, you may need to fill Form 2220 (for estimated penalties) and attach the same. You have to do this even if you have no penalty. Write the value on line 33.
- Lines 34, 35, and 36 depend on Schedule J. If the value on line 32 is lesser than the addition of the values on lines 31 and 33, you owe some amount. Enter the value on line 34.
- Similarly, if the value on line 32 is greater than the addition of the values on lines 31 and 33, you are under overpayment. Enter the value on line 35. Enter the amount from line 35.
- Your signature, date, and details of the firm need to be filled in the lines after this section. Then, proceed to the next page, which contains Schedule C.
- This section contains all your deductions and dividends.
- There are 3 columns - ( a ), ( b ), and ( c ). Column ( a ) is where you have to fill your information, column ( b ) contains the deduction percentage, and column ( c ) contains the product of columns ( a ) and ( b ).
- If you own less than 20% of a domestic corporation, you have to include your dividends on line 1.
- If you own more than 20% of a domestic corporation, you have to include your dividends on line 2.
- If you have acquired any dividends on debt-financed stock after July 18, 1984, include the same on line 3. However, column ( b ) is not fixed here. The deduction percentage is decided based on the amount of debt incurred for acquiring the stock. You will need to attach a relevant statement for the same.
- On lines 4 and 5, enter the dividends on certain stock subject to income tax (for less-than-20%-owned and more-than-20%-owned domestic corporation, respectively).
- Lines 6 and 7 contain dividends from less-than-20%-owned and more-than-20%-owned foreign corporations.
- Dividends on entire foreign subsidiaries will be entered on line 8.
- Add values from lines 1 to 8 and enter the result on line 9. You have to refer to the Worksheet for Schedule C on page 16 of the Form 1120. This is to be done for limitation. Ideally, the limitation does not apply even if there is a loss via dividend deduction.
- Any dividends obtained from small domestic corporations under the Small Business Investment Act (1958) that are subject to income tax are to be entered here on line 10.
- Any dividends from affiliated group members are to be entered on line 11.
- Certain dividends from FSCs that are eligible for 100% deduction are included on line 12.
- Enter the dividends from foreign corporations on line 13 (apart from the ones included earlier).
- Refer to Form 5471 for the amount to be entered on line 14. It contains the dividends from CFCs (Controlled Foreign Corporations).
- Enter the gross-up for all the foreign dividends on line 15.
- Enter taxable distributions from an IC-DISC that are not eligible for deduction on line 16.
- Any other dividends are to be entered on line 17.
- A deduction of 40% is allowed for public utilities on dividends paid on preferred stock. Enter the value on line 18 ( c ).
- Add the values between lines 1 to 17. Enter the result on line 19. This is the value that has to be entered on line 4 of the first page.
- Similarly, add the values on lines 9, 10, 11, 12, and 18. Enter the value on line 20 as well on line 29 (b) of the first page.
- Schedule J is the section of tax payment and computations.
- Line 1 of part I is a check-box. If your corporation is a part of a controlled group, check the box and attach Schedule O of Form 1120.
- The tax for a qualified personal service corporation is 35% on taxable income. If the corporation is a qualified personal service, check the box on line 2.
- A corporation that is not exempted from AMT (Alternative Minimum Tax) has to enter this value on line 3 and attach Form 4626.
- Add vales on lines 2 and 3, and enter the value on line 4.
- You will have to now refer Form 1118. You have to find out when your corporation can claim credit for income tax payment to a foreign country. Enter the value on line 5(a).
- If you have any qualified electric vehicle credit from earlier tax years, enter it on line 5(b) and attach Form 8834.
- Form 3800 qualifies for the General Business Credit. Enter the value on line 5(c).
- If you have any credit on the minimum tax for the previous year, enter the same on line 5(d) and attach Form 8827.
- Refer to Form 8912. Enter any allowable credit on line 5(e).
- Add all the values of line 5 and enter the result on line 6.
- Subtract this value from line 4 and enter the result on line 7.
- If your corporation is a personal holding company, enter the tax amount on line 8. Attach Schedule PH of Form 1120.
- Line 9(a) to 9(h) contain different credits for which you have to refer and attach different forms. Sequentially, they contain investment credit (Form 4255), low-income housing credit (8611), interests due for long-term contracts under the look-back method (Form 8697), alternative tax on shipping (Form 8902), and any other credits.
- Add all the above 6 values and enter the result on line 10.
- Add values on lines 7, 8, and 10. Enter the result on line 11. This value also has to be entered on line 31 of the first page.
- Next, lines 12, 13, and 14 contain the previous year overpayment, current tax payments, and refunds for the current year. Add them all and enter the value on line 15.
- If you have filed Form 7004 and deposited tax on the same, enter the amount on line 16.
- If any federal income tax has been withheld for the corporation, enter the amount on line 17.
- Add the values on lines 15, 16, and 17 and enter the result on line 18.
- Line 19 contains refundable credits. Refer to Form 2439, Form 4136, and Form 8827 sequentially and enter the credit values on lines 19(a), 19(b), and 19(c) respectively. If there is any other refundable credit, write the value on line 19(d). Attach the relevant document.
- Add all the above 4 values and enter the result on line 20. Then, add lines 18 and 20, enter the value on line 21.
- This value also has to be entered on line 32 of the first page.
- This section encompasses Schedule K of this form. It contains a list of 'Yes/No' questions.
- Check whichever accounting method the corporation uses, on line 1.
- Refer to the Principal Business Activity Codes. Accordingly, determine your business activity code number, business activity, and product, enter them on lines 2(a), 2(b), and 2(c) respectively.
- If the corporation is under a parent-subsidiary controlled group or affiliated group, check 'Yes' on line 3 and enter the EIN of the corporation.
- Line 4 questions you about the corporation's constructive ownership. If any corporation (foreign/domestic) or partnership owns more than 20% of your corporation and 50% of the stock voting power, check 'Yes' on line 4(a) and complete Part I of Schedule G of Form 1120.
- Similarly, if any individual owns more than 20% of the corporation or more than 50% of the voting power, check 'Yes' on line 4(b) and complete Part II of Schedule G of Form 1120.
- Line 5 questions you about the constructive ownership of other entities. If the corporation owns more than 20% of a foreign corporation or more than 50% of its total stock voting power, check 'Yes' on line 5(a) and enter the details of the corporation (name, EIN, country, voting stock percentage).
- Similarly, if your corporation owns more than 20% of a foreign partnership/entity or more than 50% of its stock voting power, check 'Yes' on line 5(b) and enter related details.
- If the corporation has paid excess dividends (apart from stock dividends) on the accumulated profit, file Form 5452.
- If any foreign individual has owned 25% of the stock voting power or all the stock, enter the stock percentage and the country on line 7.
- If any publicly offered debt has been issued by the corporation, check 'Yes' on line 8 and file Form 8281.
- Enter the accrued tax-exempt interest on line 9.
- Enter the number of shareholders on line 10 (not more than 100).
- If there is an NOL deduction for the tax year and the corporation wishes to cancel the carryback period, check 'Yes' on line 11.
- On line 12, enter the earlier NOL carryover.
- If the corporation's total receipts are less than USD 250,000, Schedules L, M-1, and M-2 need not be filled. The amount of cash distributions needs to be entered on line 13.
- Check 'Yes' on line 14 if the corporation files for Schedule UTP (Uncertain Tax Position) Statement of Form 1120.
- Check 'Yes' on lines 15(a) and 15(b) if the corporation files Form 1099 for making payments.
- Check 'Yes' on line 16 if the corporation has had an ownership change of more than 80%.
- Check 'Yes' on line 17 if the corporation has disposed off more than 65% of assets in any taxable/non-taxable transaction before filing this form.
- If the corporation has received transferred assets with a fair market value of more than USD 1 million, check 'Yes' on line 18.
- Schedule L contains the balance sheet data. You have to fill information regarding assets, liabilities, and shareholders' equity.
- Here, you have to fill asset values, loans, mortgages, inventories, real estate, depreciable assets, land, amortization, etc.
- Your total asset value will be on line 15.
- From line 16, you will come across payable accounts, bonds, shareholder loans, capital stock, paid-in capital, etc. Refer to the right information and fill the form accordingly.
- Schedule M-1 is required to be filed for reconciliation of income. Here, you have to fill your net income (loss), federal income tax, excess capital losses, income that has not been subjected to tax (on record), and expenses that have not been deducted for that year.
- Add these values and enter the same on line 6.
- On line 7, enter the income that has not been included on this return, and on line 8, enter deductions that have not been charged.
- Add them both and enter the result on line 9.
- If the value on line 6 is less than this value, enter the amount from line 28 of the first page on line 10.
- Schedule M-2 contains the unappropriated retained earnings.
- You have to add the initial balance, net income (loss), and other increases. Enter this value on line 4.
- Then, add the distributions (stock/property) and decreases. Enter this value on line 7.
- Enter the difference on line 8. It is the balance at the end of the year.
- It may be necessary to attach Schedule M-3 with this form.
Form 1120 is a very essential form for corporations. It is considerably lengthy than other forms as the returns are being filed for a corporation, not an individual. Every piece of information entered should match with the corporation's saved records. The form contains other attachments as well; therefore, the corporation has to ensure complete accuracy and caution while filing Form 1120.