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How to Prepare a Corporate Tax Return

Prepare IRS Form 1120 to report corporate taxes.


C-corporations fle Internal Revenue Service Form 1120 to report income, expenses and other tax
items. Form 1120 is due ! the 1"th da! o# the third month a#ter the close o# the corporations fscal
!ear. IRS Form $00% can e fled to re&uest an automatic six-month extension to fle Form 1120. C-
Corporations pa! #ederal tax on net income and are su'ect to state tax on net income.
Step 1
(etermine the corporations net income. Record all revenue, cost o# )oods sold and expense items on
Pa)e 1 o# Form 1120. *axale income e#ore deductions #or net operatin) losses is reported on +ine 2,,
Pa)e 1 o# Form 1120. (educt an! net operatin) losses the corporation has and report taxale income
on +ine -0, Pa)e 1 o# Form 1120.
Step 2
Calculate the corporations #ederal tax ! preparin) Schedule . on Pa)e - o# Form 1120. /ttach
Schedule 0 i# the corporation is a memer o# a controlled )roup. / corporation is a memer o# a
controlled )roup i# it is a part o# a parent-susidiar! relationship. I# the corporation is a &ualifed
personal service corporation, chec1 the ox next to +ine 2 and calculate the tax at -" percent o#
taxale income reported on +ine -0 o# Form 1120, Pa)e 1.
Step 3
Calculate the corporations #ederal tax accordin) to the tax tale on Pa)e12 o# the Instructions to Form
1120. For example, i# the corporations taxale income per +ine -0 o# Form 1120 3as 4220,000, the
#ederal tax 3ould e 4--5,500. *his is calculated usin) the #ollo3in) steps6 4220,000 - 4--",000 7
45"",0008 45"0,000 x 0.-% 7 4222,$008 4221,000 9 411-,200 7 4--5,500.
Step 4
(etermine i# the corporation is su'ect to an! o# the alternative minimum tax pre#erence items per IRS
Form %525. *ax pre#erence items consist primaril! o# amorti:ation and depreciation. Complete Form
%525 i# the corporation is su'ect to alternative minimum tax and enter the result on +ine - o#
Schedule ., Form 1120. /dd +ines 2 and - and enter the resultin) tax liailit! on +ine %.
Step 5
(etermine i# the corporation is eli)ile #or tax credits listed on +ines "a throu)h "e. *hese credits 3ill
reduce the ultimate tax liailit!. Calculate the total tax credits and enter the result on +ine 5.
Step 6
Sutract total tax credits per +ine 5 #rom the total tax liailit! per +ine %. Complete Schedule P; i# the
corporation is a personal holdin) corporation and enter the result on +ine $ o# Schedule ., Form 1120.
*he defnition o# a personal holdin) corporation is <i= at least 50 percent o# the corporations )ross
income 3as personal holdin) income and <ii= at an! time durin) the last hal# o# the !ear least "0
percent o# the corporations stoc1 3as o3ned ! fve or #e3er individuals.
Step 7
(etermine i# the corporation is su'ect to an! o# the other taxes listed on +ine 2. *hese taxes deal 3ith
recapture o# investment credits and lo3-income housin) credits, loo1-ac1 provisions #or interest on
lon)-term contracts and alternative tax on &uali#!in) shippin) activities. I# the corporation is su'ect to
these taxes, complete the appropriate #orm and enter the tax on +ine 2.
Step 8
/dd +ines $ throu)h 2 to calculate the corporations #ederal tax. >nter the result on +ine -1, Pa)e 1 o#
Form 1120. Reduce the total tax liailit! #or estimated tax pa!ments made and overpa!ments applied
#rom prior !ears.
How to Fill Out a U.S. Corporation n!o"e Tax
Return
?.S. corporations must fle annual income tax returns 3ith the IRS.
Corporations must fle annual income tax returns on or e#ore the 1"th da! o# the third month a#ter
their tax !ear-end. *he taxation rules depend on the t!pe o# corporation. C corporations are taxed
directl! on their earnin)s so the individual shareholders onl! pa! income tax on the dividends the!
receive. S corporations pass all income and deductions strai)ht throu)h to shareholders.
Tax Forms
@isit the IRS 3esite to do3nload the necessar! #orms and schedules. For C corporations, !ou must fle
on Form 1120. S corporations must use Form 1120-S and attach a Schedule A-1 #orm #or each
shareholder. I# !ou operate a tax-exempt nonproft corporation, !ou must fle !our taxes on Form 220.
Buali#!in) reli)ious or)ani:ations should use Form 105".
Basic Information
Include the compan! name, contact in#ormation and emplo!er identifcation numer in the frst section
o# the #orm. Car1 the chec1ox #or a fnal or amended tax return i# either applies to !our compan!Ds
situation. +ist the tax !ear-end date, the date o# incorporation and the compan!Ds total assets. ?se
Schedule + to provide a detailed rea1do3n o# the compan!Ds assets.
Reconciling Income
*imin) discrepancies et3een tax rules and accountin) principles can create diEerences in a
corporationDs )eneral led)er income and its taxale income. *his #re&uentl! occurs ecause taxes are
calculated on a cash asis, 3hile the corporationDs oo1s are 1ept on an accrual asis. ?se Schedule C-
1 or C-- to report the reconciliation, dependin) on the compan!Ds total asset value. Some common
timin) issues include usin) diEerent schedules #or the depreciation o# usiness assets and non-
deductile expenses #or travel and entertainment.
Income and Deductions
+ist the compan!Ds )ross receipts or sales #or the tax !ear and an! returns or allo3ances oEered to
customers. Complete Form 112"-/ i# !ou need to report cost o# )oods sold to oEset !our )ross
receipts. Sutract the cost o# )oods sold, returns and allo3ances to fnd the compan!Ds net sales.
Include all other t!pes o# income in this section, such as dividends, interest, rents, ro!alties and capital
)ains or losses. *otal all !our income items on line 11. (educt salaries, 3a)es and various operatin)
expenses. ?se Form 112"-> to report compensation paid to oFcers o# the corporation. +ist deductions
#or charitale contriutions, depreciation on usiness propert!, emplo!ee enefts and retirement
plans. *otal !our deductions on line 2$, and then sutract this amount #rom line 11 to fnd the
corporationDs taxale income e#ore net operatin) loss deductions. Report !our net operatin) loss on
line 22 and the compan!Ds taxale income on line -0.
Tax Calculation
?se Schedule . to calculate !our taxes due. +ist all estimated pa!ments !our compan! made durin)
the !ear, and add penalties #or an! missed estimated tax pa!ments. I# !ou overpaid, !ou can re&uest a
re#und or appl! the alance to !our tax liailit! #or the next !ear. Si)n and date the ottom o# the #orm.
Include the paid preparerDs in#ormation and si)nature i# !ou hired an accountant or other pro#essional
to assist 3ith the preparation o# !our tax return.