The deadline is near, the files are not fully ready, and penalties are waiting to add up. Many S Corporations find themselves in this exact situation with Form 1120-S. Filing late does not just bring fines; it also delays shareholder reporting and adds unnecessary stress to your business operations.
This guide explains what Form 1120-S is, how to file it step by step, penalties for non-compliance, and what businesses should keep in mind as the September deadline approaches.
What Is Form 1120-S?
Form 1120-S is the U.S. Income Tax Return for an S Corporation. Unlike C Corporations, which pay corporate income tax directly, S Corporations are pass-through entities. This means the company itself does not pay federal income tax. Instead, the profits, losses, deductions, and credits pass through to shareholders, who report them on their personal tax returns.
The form serves two key purposes:
• It reports the corporation’s income, deductions, and credits to the IRS.
• This process ensures shareholders receive Schedule K-1 forms, allowing them to accurately report their share of income or losses on their individual tax returns.
Even if your S Corporation had no income during the year, you are still required to file Form 1120-S.
The Upcoming Filing Deadline
For the 2024 tax year, S Corporations that filed a Form 1120-S extension in March must submit their return by September 15, 2025. This is the final deadline and missing it can lead to significant financial penalties.
Penalties for Non-Compliance
The IRS enforces strict penalties for late or incomplete Form 1120-S filings, and these costs can add up quickly. This is similar to payroll tax compliance, where businesses must decide between filing Form 941 or Form 944, depending on their reporting requirements.
To make it clearer, here are the main types of penalties you could face:
Late Filing Penalty
If your corporation misses the September 15 deadline, the IRS may impose significant penalties:
• For returns with no tax due, the penalty is $245 per month (or part of a month) per shareholder, for up to 12 months.
• If tax is due, the penalty also includes 5% of the unpaid tax per month, capped at 25%.
• For returns more than 60 days late, the minimum penalty is the smaller of the tax due or $510.
Incomplete Filing Penalty
Submitting the return without complete information such as failing to provide all shareholder Schedule K-1s can also result in penalties. Each incorrect or missing Schedule K-1 may trigger fines, making it essential to prepare Form 1120-S with precision.
Interest on Shareholder Taxes
While the S Corporation itself does not pay federal income tax, shareholders must report and pay their share. If shareholders underpay, the IRS charges interest and penalties until the balance is settled.
State-Level Penalties
States may impose their own late fees and interest charges. Even if you file your Form 1120-S federally, check state requirements to stay compliant.
Step-by-Step Guide to Filing Form 1120-S
Filing Form 1120-S can feel overwhelming, but following a structured process makes it manageable.
Step 1: Gather All Required Information
Collect the following before you begin:
• Employer Identification Number (EIN)
• Incorporation documents and Form 2553 (S Corporation election)
• Prior year’s financial statement (if applicable)
• Income statement and balance sheet
• Records of deductions, expenses, and credits
• Estimated tax payments or withholdings already made
• Shareholder details, including ownership percentages
This preparation ensures your IRS Form 1120-S filing goes smoothly.
Step 2: Report the Corporation’s Income
Start by recording gross receipts or sales. Then subtract any refunds you issued, discounts given to customers, and the cost of producing or purchasing the goods you sold. The result is your gross profit. After that, include any additional income, such as interest earned or rental income, to arrive at the total income you will report on Form 1120-S.
Step 3: Enter Deductions
Deduct allowable business expenses such as wages, salaries, rent, advertising, depreciation, and interest. Reporting these correctly ensures the taxable income on Form 1120-S is accurate.
Step 4: Report Credits and Payments
If your business is eligible for tax benefits such as energy efficiency credits, research and development credits, or other government incentives, make sure to include them in this section. Also, add estimated tax payments or prior year overpayments applied to the current year. These details complete the credit section of Form 1120-S.
Step 5: Complete Schedule K
Schedule K summarizes the corporation’s income, deductions, credits, and other items. This part of Form 1120-S shows the full business picture but does not break down results by shareholder.
Step 6: Prepare Shareholder Schedule K-1s
Each shareholder must receive a Schedule K-1 with their allocated income, losses, and credits. Accuracy here is vital, as shareholders rely on these forms. Without correct K-1s, even a properly filed Form 1120-S may still cause issues.
The balance sheet should reflect your corporation’s year-end financial position.
• Schedule L reports the corporation’s year-end balance sheet.
Note: You may not need to complete Schedule L if both of the following apply:
• Annual gross receipts are under $250,000
• Total assets at year-end are under $250,000
• Schedule M-1 reconciles company profits on the books with profits reported to the IRS
• Schedule M-2 tracks accumulated adjustments and equity
Completing these schedules correctly ensures the accuracy of Form 1120-S filings.
Step 8: File Form 1120-S
Most S Corporations must e-file since paper filing is rarely allowed. Submit your return and distribute all K-1s to shareholders.
Unsure where to file Form 1120-S? The IRS provides clear e-filing instructions and paper submission addresses on its official site.
What’s New in 2025?
Several updates affect Form 1120-S filing this year:
• Mandatory E-Filing Expansion: Fewer paper filing exceptions are accepted
• State-Level PTE Elections: States are allowing more pass-through entity tax elections, letting S Corporations pay certain state-level taxes directly
• IRS Oversight: The IRS is increasing audits of pass-through entities, placing more scrutiny on IRS Form 1120-S
Tips for Businesses Filing Form 1120-S
Maintain Records Year-Round
Keep receipts, reconcile accounts monthly, and review reports quarterly to simplify Form 1120-S preparation.
Track Shareholder Changes
Ownership shifts must be reflected correctly on Schedule K-1s. Errors here affect compliance.
Understand State Rules
Check whether your state requires additional filings alongside Form 1120-S.
Use Extensions Wisely
Form 7004 provides more time to file, but not to pay. Always estimate taxes on time to avoid penalties.
Seek Professional Support
Tax professionals can help manage complex filings, especially if your corporation has many shareholders or operates in multiple states.
How Current Conditions Affect Filing in 2025
Businesses face new challenges while preparing Form 1120-S in 2025. Inflation and high interest rates make accurate expense reporting critical, while IRS scrutiny on pass-through income means errors are more likely to trigger audits. Preparing ahead of the September deadline ensures smoother compliance.
You can file your return accurately and on time, avoiding penalties and last-minute stress, by getting it done with our expert team of CPAs.
Common Mistakes to Avoid
• Filing Form 1120-S after September 15
• Forgetting to issue Schedule K-1s
• Misallocating ownership percentages
• Skipping reconciliation schedules
• Attempting to paper file without approval
• Ignoring state filing requirements
Avoiding these errors keeps your Form 1120-S filing clean and compliant.
Conclusion
Form 1120-S plays a central role in S Corporation tax reporting. Some businesses may also wonder whether they should file as a partnership instead. In such cases, comparing Form 1065 and Form 1120-S can help determine which applies to your business.
Filing Form 1120-S correctly keeps your business compliant and ensures shareholders receive accurate information. With the September 15, 2025, deadline approaching, now is the time to get everything in order.
If you want to save time, avoid penalties, and ensure peace of mind, let the experts step in. Our team can prepare, review, and file your Form 1120-S with complete accuracy.
Book your free consultation today and make sure your business is ready for a smooth filing season.
