Income and expenses related to active business activities, trades, or services are reported on page 1 of Form 1120s. The profit or loss from page 1 of Form 1120S are entered on Schedule K (Form 1120S) line 1.
Income, expenses, profit, or loss from passive activities including but not limited to rental real estate, other rental activities, interest, royalties, investment, are directly entered on Schedule K (Form 1120S) instead. Income and expenses from passive activities are NOT entered on page 1 of Form 1120S.
If you have an LLC taxed as S Corporation, you will be required to file Form 1120S U.S. Income Tax Return for an S corporation tax return. The video in the article explains step by step how to complete Form 1120S and Schedule K-1 for 2023.
When the business is engaged in active business activities, trade, or services but the business owners didn’t work in the business, the activity is a passive activity for the business owners but NOT for the business itself. Therefore, the income and expenses should be entered on page 1 of Form 1120S. The profit or loss from page 1 Form 1120S will go on Schedule K line 1 and on box 1 of Schedule K-1s.
The business owners that didn’t materially participate in the business cannot claim loss from passive activity against from W2 income or portfolio income. They can only claim it against their income from passive activity. You can read more in the IRS instructions for Form 1120S page 8.
To file Form 1120S, download IRS Instructions for Form 1120S from www.iRS.gov.
Have your business financial data ready including:
Your business expenses.
Total gross revenues
Capital contribution during the year.
Business balance sheet.
Have business partners information ready including name, social security number, and address.
Pick an online tax software to file your tax return.
File your Form 1120S and Schedules K-1 and your state Form 1120S.
Review your return and submit electronically and mail if you meet the paper mail return requirement.
Give the partners their Schedules K-1 for them to use when filing their individual tax return Form 1040.
Keep a copy of Form 1120S and its Schedules for your business record.
It can save you time to use tax software to file your tax return. The tax software will transfer your data to any other tax forms required including your state business tax return. It will also help you split the Schedule K-1 (Form 1120S) data into Schedule K-1s boxes based on the partner’s share of ownership.
You can fill out Form 1120S as a draft to have an idea what your numbers will be by the time you are done filling in the return with the tax software. To do so, you download Form 1120S, Schedule K-1 (Form 1120S), and you download any other forms you might be required to complete.
To fill out IRS Form 1120S for 2023 for your LLC taxed as an S Corporation, go to IRS website and search Form 1120S.
Download Form 1120S for 2023, Schedule K-1 (Form 1120S), and IRS Instructions for Form 1120S.
If you have rental real estate properties, you will need Form 8825.
If you sell physical products and carry inventory, you will need Form 1125-A Cost of Goods Sold.
If you have depreciable assets, you will need Form 4562 Depreciation and Amortization. You will also need the instructions for Form 4562, and Publication 946 How to depreciate a property.
It is a good idea to use tax software to file your business tax return to save time.
If you want information on how to fill out Form 1125A Cost of Goods Sold you can access the link at the bottom.
Article on Form 4562 Depreciation and Amortization is at the end as well.
Download your tax forms and schedules and save them in your business tax folder.
How to fill out IRS Form 1120 S for 2023?
Business Information:
Item A: The “S” election effective date: enter the date IRS approved you to treat your LLC as an S Corporation for tax purposes. The S effective date may not necessarily be the same as the date your business was incorporated.
Item B: Business activity code number: You can look for the business activity code in the IRS Instructions for Form 1120S at the end of the instructions. You will choose the business activity code number that corresponds to your principal business activity. If it is not your first-year filling Form 1120S for your business, you might want to use the same business activity code number you used in the past but first check the IRS business activity code to make sure your code didn’t change or the one you used in the past is still listed in the business activity code list. The link to the article related to the business activity code can be found at the end.
Item C: if you are required to complete Schedule M-3, check that box. Otherwise leave it blank.
Name: Type your business name the way you filed your business with your state. On Form 944 Employer Annual Federal Tax Return or Form 940 Employer Federal Unemployment Tax Return, the business name required was the business legal name as it was on your EIN application Form which can be found on IRS Form SS-4 or EIN approval letter. That business legal name might be different from your business name as filed with your state if the EIN application form didn’t allow you to include dots in your business name for instance while your business name has dots. More in IRS Instructions for Form 1120S around page 13.
Type your business address.
Item D: Enter your business EIN (Employer Identification Number).
Item E: Enter the date your state approved your business to be LLC. The approval document will have the start date of your LLC.
Item F: Enter your business total assets value. You can find the amount in your balance sheet year end at the bottom on the Line Total Asset.
Check the right box for Line G that corresponds to your business.
Item H: If any box applies to you, check it otherwise, leave it blank.
Item I: Type the number of shareholders or partners, or members your business has.
Item J: If any applies to you, check it otherwise, leave them blank.
Form 1120S Income.
Line 1a Gross Receipts: Enter your business annual gross sales total. It should not include state sales tax.
Line 1b: Enter the total amount of return or refund for the year.
You can find your total sales and refunds in your inventory and sales worksheet. If you need a template to track your inventory and sales, you can download a free inventory and sales worksheet for free under our free downloads.
Line c: Do Line 1a minus Line 1b.
Line 2 Cost of goods Sold: You could pull the cost of products you sold during the year from your inventory and sales record.
If you do not use a software to track your inventory and sales, you can download a copy of Free Inventory and Sales Worksheet from our blog https://ninasoap.com.
If you keep inventory, you could be required to complete Form 1125-A Cost of Goods Sold and attach it to Form 1120S.
Line 3 is the gross profit.
Line 4: Other income (Loss)
If you are required to file Form 4797 to recapture depreciation deduction taken for instance or for any other reason, the net gain or loss will go on this line. More information about this line can be found in the IRS Instructions for Form 1120S on page 14. Any employment tax credit nonrefundable and refundable (qualified paid sick and qualified paid family leave) taken when filling employer federal tax return might need to be entered as other income instead of deducting it from tax that will be entered on the line for tax and licenses expenses. You can read more about it in the instructions for form 1120S page 15 or so.
Line 6: Total income or (loss). Do the calculation as instructed and put the amount on that line for your business annual income or loss.
Form 1120S Deductions.
Line 7 Compensation of Officers:
Based on my acknowledge, Line 7 should be the gross payroll paid to officers or business partners that worked in the business during the year and collected salaries. It should be the same as what you reported on their W2 Box 1 and wages. That means it you include the Federal income tax you withheld on their wages, employee social security tax withheld, and employee Medicaid tax withheld. Based on my view, if the business uses the cash method, it should not report expenses not actually during the year. For that reason, if employee federal income tax, social security tax, and Medicaid tax withheld by the employer were not deposited to IRS during the year, they should not be included on Line 7. In that case Line 7 might match the net take home payroll for these officers.
Keep in mind that if the business uses an accrual method of accounting, the way to report expenses might be different. However, for cash method, I didn’t think I should deduct taxes withheld form officers’ salary during the year I am filling the tax return for if I paid these withholding taxes to IRS the following years as employment and unemployment tax are due by the end of January. With the cash method of accounting, we report expenses in the year you paid them not in the year you incurred them.
Line 12: Taxes and Licenses: If you report total wages for officers on Line 7 and total wages for employees on Line 8 and these wages are the same reported on the W-2s Line 1, Line 12 should only include employer portion of social security, employer portion of Medicaid, and employer federal unemployment tax. The employee tax withheld are already included in their wages on line 7 and 8 and should not be duplicated.
If the business uses cash method and report the net payroll wages on Line 7 and 8, the total employee and employer employment tax and employer unemployment tax will be reported on Line 12 for these tax liabilities incurred last year but paid in the year the business is filling for.
If the business uses cash method and paid to IRS or deposited to IRS all employee and employer employment tax and employer unemployment tax for the year during the same year, line 7 and 8 would have the wages as on W2 box 1 and the line 12 will have employer portion of employment tax and employer unemployment tax paid.
These are my opinions. You can read more about line 7, 8, and 12 in the IRS Instructions for Form 1120S page 17.
If you paid state consumer use tax or state retailer, use tax, you do not include it on Line 12. These business use taxes should be included in the cost of the products used by the business or the assets basis for depreciation.
If there are any licenses paid that fit this category of expenses, you should add.
Line 13 Interest: If you have an interest related to your business as described in the instructions you report it here. It could include some credit card interest you paid during the year if they are not capitalized in your inventory or in your asset cost of basis.
Line 14 Depreciation:
You can find the depreciation amount on Form 4562 Line 22.
Line 16 Advertising cost will go her.
Line 20 Other Deductions: This line will include startup cost and business organization cost if that is your 1st year in your business and this cost is below threshold limit. If they exceed the threshold, you will amortize the rest over 180 months. You can deduct up to $5,000 of business organization cost and up to $5,000 of business start-up cost in the first year of being in the business. If your startup cost or organizational cost exceeds more than $50,000, you will not be able to amortize all of them. Keep in mind that the amount you can deduct as expense the first year can change from year to year. You can find more information on IRS website Guide to Business Expenses Resources:
https://www.irs.gov/forms-pubs/guide-to-business-expense-resources
More information on start-up cost and organizational cost amortization around page 15 of IRS Instructions for Form 4562 Depreciation and Amortization.
If you have amortization deduction, it will be included on this line of Form 1120S Other Deductions.
Other expenses could include employee reimbursed amount under accountable plan, and any other business expenses that are deductible but didn’t have their own dedicated lines on Form 1120S. You will include an attachment to show the details of the expenses totaled on the Line Other Deductions. The list of the type of expenses that can fit on this line can be found on page 19 of IRS Instructions for Form 1120S.
If you need a spreadsheet to track your business expenses for your LLC taxed as an S Corporation, you can download a copy of Bookkeeping worksheet for free under Free Downloads at https://ninasoap.com.
Line 21 Total deductions: you add all the expenses together.
Line 22 Ordinary business income (loss): you subtract your Line 21 total expenses from Line 6 total income to find the profit of loss.
Line 23 to Line 27: If you have passive income and could have a tax to pay, you could read the instructions and complete section related to your business. Otherwise, leave these lines blank.
Line Sign here: Enter your business title. Check “no” if you want IRS to discuss your business tax matter with you only.
Leave Paid preparer use only section alone if you are filling the return for your own business.
How to complete Schedule B Form 1120S?
Line 1 Check accounting method: choose the accounting method you chose for your business.
Line 2: Enter your business activity on line 2a and on line 2b, enter the type of products or services you sell in your business.
Line 3 to Line 10: Read each question and check the right answer. For most young businesses, the answer will be NO.
Line 11: If any of line 11a or line 11b is yes, you are not required to complete Schedule L (balance sheet) or Schedule M-1 at the end of Form 1120S.
Line 11a: Did your company make a total gross sale of less than $250,000 during the year? You can find your total gross receipts or total sales on Form 1120S Line 1.
Line 11b: Are your company total assets at the end of the year less than $250,000? You can find this number on Item F total assets Form 1120S or in your balance sheet total assets.
For most new businesses, the answer will be yes. Check the right box for your answer.
Line 12 to Line 13: Read the questions and answer them.
Line 14a: Do you have to file Form 1099? If the answer is yes check it. If yes, do you plan on filling it on time. Check the right answer.
Line 15 & Line 16: read the questions and answer them.
How to fill out Schedule K Form 1120S?
Schedule K (Form 1120S) Income:
Line 1 Ordinary Business income or loss: Enter the amount from Form 1120S Line 21.
Line 2 Profit or loss from rental real estate: Complete Form 8825 where you report your rents from your properties and your properties expenses. The profit or loss from Form 8825 will be reported on Schedule K Line 2.
Line 3: if you have rental activities that are not real estate, you will use line 3a to line 3c for the expenses.
If you have portfolio income check line 4 down in the income section of Schedule K and put your income on the appropriate line. Expenses related to portfolio income will go on line 12d of Schedule K and on Box 12 of Schedule K-1 with code L.
Line 4: Interest income.
Line 5a: Ordinary dividend earned. Line 5b: Qualified Dividend.
Line 6: Royalties income. Expenses related to royalties will go on Line 12d Other deductions of Schedule K and box 12 on Schedule K-1 with code I.
Schedule K Deductions (Expenses):
Business expenses related to conventions, seminars, or business meetings are not deductible expenses. These expenses are not deductibles by shareholders. Therefore, you do not report these expenses on line 12d of Schedule K. You report them on Line 16c Nondeductible on Schedule K and on box 16 of schedule K-1 with Code C.
Line 11 Section 179 deduction: If you claimed section 179 on form 4562 or if you expense depreciable assets you purchased during the year, you need to complete form 4562 Depreciation and Amortization and attach it. Section 179 deduction does not go on Form 1120S page 1. It goes on Schedule K line 11 and box 11 of schedule K-1.
If you have qualified deductions for Line 12, put it on the right line. You can find more information on IRS instructions for form 1120S on page 31.
Line 13 is for credits. If any apply to your business, complete them otherwise, leave them blank.
Line 14 is for international business data. Schedule K-2 (Form 1120S) might be required to report any data on this line.
Line 15 Alternative minimum tax: If it applies to you, you complete that part. If it doesn’t apply leave that part blank.
If you made distribution to shareholders or have nondeductible expenses, there are line 16 to 17 for you to complete.
Line 17 Other Items and Amount: Section 199A Information: “Code V” will be used on Schedule K-1 for the amount related to Section 199A. Nothing will be entered on Schedule K Line 17. You will add an attachment for that line.
On Schedule K-1 Box 17, for Section 199A information, it is recommended to add the detail numbers. Therefore, you should add in Box 17 the code V in the left side of the box and in the right side where the dollar amount should be, you enter STMT. That way you add an attachment for schedule K-1.
Section 199A information is related to QBI (Qualified Business information).
If you have active business activities and reported income and expenses on Form 1120S page 1 the profit or loss from Form 1120S could be section 199A information. If you paid wages to employees or business partners that work in the business as officers, these wages could be section 199A information.
If you depreciate long term business assets, it could be section 199A information.
The tax software will pull information necessary to complete the attachment for line 17 Schedule K and Schedule K-1 box 17.
You can read more about Line 17 and QBI in the IRS instructions for form 1120S page 42-47.
Line 18 Income or loss. Follow the calculation instructions to calculate the profit or loss for Schedule K.
Form 1120S Schedule K Box 17:
If the business officers were paid wages, you might need to complete Box 17 of Schedule K for the QBI (Qualified Business Income)
Because the number that should go to box 17 for QBI related should be detailed, it is recommended to add it on an attachment.
Therefore, on Schedule K-1 box 17, you put Code V* at the left in the code section or column and in the dollar amount column of box 17 you type “STMT” to specify the detail is on an attachment.
You can read more on QBI in the instructions for Form 1120S from page 39+.
As you use tax software to complete your tax return, the tax software would complete the QBI worksheet for Schedule K and Schedule K-1s.
You should review the attachment related to schedule K box 17 to see how it is completed and the schedule K-1s box 17 related attachment.
The QBI worksheet could have:
The business profit or loss from page 1 of Form 1120S if you have an amount on that line.
W2 wages paid to employees and officers.
UBAI qualified property for the depreciable assets that qualified.
The attachment for Schedule K will have detailed information and each Schedule K-1 will have the partner’s share of the amounts.
Schedule M-2
The IRS instructions for form 1120S page 48 for more information on how to complete it.
How to fill out Schedule K-1 Form 1120S for 2022?
You need to complete Schedule K-1 (Form 1120S) for each partner.
The numbers on schedule K will be allocated proportionally to the partners based on their ownership interests.
The total of all schedules K-1 will total to Schedule K.
Schedule K-1 Part-1
Item A: enter your business EIN.
Item B: Enter your business name and address.
Item C: Enter the city state, and zip code of the IRS address you will mail the tax return to.
You can find the address in the IRS Instructions for Form 1120S on page 3.
Item D Corporation total number of shares:
LLC doesn’t have shares. But IRS recommends you put some numbers for Item D.
S Corporations have one class of stock when it comes to distribution and liquidation rights but can have voting and nonvoting rights. LLC, taxed as an S corporation to keep the S corporation status, is required to have the same members ownership interests when it comes to distribution and liquidation rights.
Because LLC doesn’t have stocks, the member ownership interest could be used as stocks in the case of filling schedule K-1 for Form 1120S. It is my opinion. The business total share could be entered as 100 for instance. If a partner owns 44% then that partner’s share could be 44.
You can read more on how to complete item D on IRS instructions for form 1120S page 25.
Part 2
Item E: Enter the partner SSN.
Item F: Enter the partner’s name and address.
Item G: Partner ownership interest: Enter the percentage of the partner ownership interest. You can read more on how to complete item G on IRS instructions for form 1120S page 25.
Item H Shareholder’s shares: It is the same issue as item D. LLCs usually don’t have stocks. But since IRS recommends, we use our LLCs equivalent of stocks, you could use the partner ownership interest for this line in my opinion. You can read more on how to complete item D on IRS instructions for form 1120S page 25.
Item I Loan from shareholder: If it doesn’t apply to your business leave it blank.
Part 3 Shareholder incomes and deductions
Using Schedule K look at each line of Schedule K. If a line on Schedule K has a number, its corresponding box on Schedule K-1 should have the partner’s portion of that number based on the partner’s ownership interest. For instance, if schedule K line 1 has a number, you take that number multiply by the partner’s current year allocation percentage you entered on Item G. You put the result in box 1 for schedule K-1 for that partner.
By the time you completed K-1 for all your partners, the total of a box for all the K-1s should equal that line on schedule K.
Some Schedule K-1 boxes (box 10 to box 17) require you enter a code related to the amount entered. You can find the right code to use in the instructions for Form 1120S page 25 to 48.
When you are done completing schedules K-1, review your return for accuracy and print them out.
How to assemble your Form 1120S tax return?
If you choose to mail your return or paper file your return, you print your Form 1120S, and all the forms you completed that are required to attach as well as the schedule K-1s. you also print out supporting documents for Line 20 other deductions Form 1120S and supporting documents for schedules k-1 if needed.
You sign Form 1120s and make a copy for your state tax return and a copy for your business record.
You make a copy of schedule K-1s and their supporting documents for your partners.
You look in IRS instructions for form 1120S page 4 Assembling the return to see the order IRS recommend you organize your forms, schedules, and supporting documents.
You staple them together and mail them to the right address.
Where to mail IRS Form 1120S?
Open IRS Instructions for form 1120S page 4.
Look for your state in the left column. Based on the total asset threshold in the second column within which your business asset fits in, locate the IRS address in the 3rd column that corresponds to that threshold row and your state. That is the address you should mail your Form 1120S tax return.
Mail your Form 1120S via USPS certified mail with tracking. Keep the receipt with a copy of the tax return for your business record.
When to file Form 1120S?
Form 1120S is due by March 15.
Conclusion: How to fill out Form 1120S and Schedule K-1 for 2023?
The video explains step by step how to fill out IRS Form 1120S and Schedules K-1.
If you need a checklist of the different financial documents you should keep up to date before you can file Form 1120S for your organization, you could purchase one at https://liberdownload.com.
If you use tax software to file Form 1120S, you may not need to calculate your asset depreciation deduction. You still need to record your depreciable business assets and know their class lives. If you need a worksheet to track your business assets, you could get one at https://liberdownload.com.
If you sell physical products and carry inventory, you could try our free inventory and sales worksheet in the free download section of our blog.
If you need a worksheet to track your business expenses and for one entry journal, you can download a free bookkeeping worksheet from the free downloads.
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