Form 1120-S: the S corporation return

Who files Form 1120-S?

A corporation, or an LLC, that has a valid S corporation election on Form 2553 files Form 1120-S every year the election is in force. See Form 2553. Whether S status saves tax for your business is covered in when an S corp election saves tax.

When is it due?

By the 15th day of the 3rd month after the tax year ends: March 15, 2027 for calendar year 2026. Shareholders must receive their K-1s by then too. Form 7004 extends the return by six months, to September 15, 2027. See Form 7004.

How is the return organized?

• Page 1: ordinary business income and deductions, including officer compensation and wages, arriving at ordinary business income or loss.
• Schedule B: other information, including accounting method and ownership questions.
• Schedule K: totals of every item passed through to shareholders.
• Schedule K-1: each shareholder's share, allocated strictly by ownership percentage and days held.
• Schedules L, M-1 and M-2: balance sheet and reconciliations, which small corporations under the receipts and assets limits in the instructions can skip.

Unlike a partnership, an S corporation cannot allocate profit differently from ownership. Each share carries the same rights to profit and distributions.

How are shareholder-employees paid?

Shareholders who work in the business must be paid a reasonable salary through payroll, reported on Form W-2 and deducted on page 1. Distributions of the remaining profit are not wages. Health insurance paid for shareholders who own more than 2% is included in their W-2 wages. See reasonable salary for S corp owners. Setting it up is covered in S corp owner payroll. See how to pay yourself from an LLC.

See bookkeeping for S corporations.

What do shareholders do with the K-1?

Report their share of income, deductions and credits on their personal returns, mostly on Schedule E, whether or not the money was distributed. Distributions are generally tax-free up to the shareholder's basis in their stock. Losses are deductible only up to stock and debt basis, then subject to at-risk and passive activity rules. Shareholders who claim losses, receive distributions or dispose of shares generally attach Form 7203 to show their basis.

Can an S corporation owe tax itself?

In some cases. A company that converted from a C corporation can owe built-in gains tax on assets it held at conversion, or tax on excess passive investment income. Some states also tax S corporations directly, such as California's 1.5% franchise tax with an $800 minimum.

What does filing late cost?

A flat penalty for each person who was a shareholder at any time in the year, for each month or part of a month late, for up to 12 months: $255 per shareholder per month for returns due in 2026, and $260 for returns due in 2027. It applies even when no tax is owed. See late filing and late payment penalties. Worked examples are in late partnership and S corp returns.

What can end the S election?

• An ineligible shareholder, such as a nonresident alien, a partnership or a corporation.
• More than 100 shareholders.
• A second class of stock, including distributions that are not proportionate to ownership.

An election that ends by mistake can sometimes be restored with IRS relief, but it is far better not to lose it.

This guide is general information. It is not tax or legal advice for your situation.