Forms 1120-S report your corporation's taxable income to the IRS. Schedule K-1 divides that taxable income between shareholders. Both the government and shareholder receive copies of Schedule K-1.

Shareholders should have already paid quarterly federal tax deposits on their portion of net income using IRS 1040ES. Any balance due is paid with their 1040 tax return.

Forms to use

1120-S Annual Tax Return for S Corporations

Schedule K-1 for shareholders

Electing to be an S-corporation

You should have elected S-corporation status already by filing IRS 2553. If you didn't, contact the IRS to find out whether you can still file S-corporation status for this tax period.

How often

Annual requirement

How to complete 1120-S

How to approach and understand these forms.

Front page

• Complete lines 1 to 21 on page 1.
• Lines 1 to 6 are your total income less your cost of goods sold.
• You will have to provide back-up for your cost of goods sold by completing Schedule A on the back side (the cost of inventory that you sold only; unsold inventory is not a business expense).
• Line 12 (taxes) should not include any income tax or state franchise taxes.
• Lines 7 to 21 are your overhead costs.
• Your tax advisor will need a separate list of any equipment that you purchased, its purchase price and the purchase date, your start-up costs, auto expenses, and any funds that went to or from shareholders.
• Lines 22 to 27 are tax calculations. S-corporation taxes are generally 0, unless your corporation has excess net passive income or has capital gains (in which you will need to complete 1120-S Schedule D).

Schedule K, page 2 and 3

• Put your total from page 1, line 21 on line 1.
• Add other income such as investment income/loss.
• Subtract charitable contributions, section 179 expenses and depreciation.

Page 4

• If your total assets or receipts are over $250,000, you must provide a beginning and year-end balance sheet (Schedule L).
• Schedule M-1 is a reconciliation between book income and taxable income. You only need to complete it if your total assets or receipts are over $250,000.
• M-2 show how much of your total earnings have been distributed to shareholders and how much remains undistributed. All corporations must complete this schedule.

Page 2 Schedule B

• These questions concern your business activity, what accounting method you use, and some specialized questions for tax shelters. On question 9, if you have fewer than $250,000 in total assets, answer "yes" and not complete the balance sheet and reconciliation of income on page 4.

Schedule K-1s

After completing 1120S, you need to divide the information from 1120S Schedule K (pages 2 and 3) between all your shareholders and prepare a 1120-S Schedule K-1 for each shareholder. The shareholders must report this income on their 1040 tax return and must pay taxes on the income stated, even if it was not distributed to them.

How to submit

Submit form 1120-S to the IRS with copies of your shareholders' Schedule K-1. Do not enclosed a check.

Click here for IRS mailing addresses for form 1120S.

You may also file 1120S on the web. The approved providers are listed at http://www.irs.gov/efile/lists/0,,id=119096,00.html. The providers include RIA Compliance, Internet Programming and Filing, Creative Solutions, CCH, and Drake Software.

Shareholder forms and taxes: Give each shareholder a copy of their 1120-S Schedule K-1. Shareholders must enter the amounts from 1120-S Schedule K-1 on IRS 1040 Schedule E. Instructions are clearly shown on 1120-S Schedule K-1.

Due date

March 15

Questions? Call the IRS information hotline (800) 829-4933. For forms, call (800) 829-3676 or obtain them online at http://apps.irs.gov/app/picklist/list/formsPublications.html.

Form 1120-A (for 1120, the long form) reports your corporation's taxable income to the IRS. The corporation should have already paid quarterly federal income tax deposits with the EFTPS online system. Any balance due for federal taxes should be paid online with EFTPS.

After you have paid federal and state corporate taxes, you can distribute profits to your shareholders (called dividends). Your corporation and shareholders must report dividend income using IRS 1099-Div. Shareholders must pay taxes on these dividends on their annual IRS 1040 tax return.

Forms to use

1120 Annual Tax Return for C Corporations>

Who can use the short form 1120-A?

Corporations which meet both these criteria can use the short 1120-A form:

• No foreign ownership or income and have receipts
• Assets less than $500,000

How often

Annual requirement

How to complete 1120

Lines and what to enter

1-11: Income less cost of goods sold. Cost of goods is calculated by taking inventory at the start of the year, adding purchases and labor costs and then subtracting inventory at the end of the year.

12-25: Overhead expenses. Include state income tax. If you have depreciable equipment or start-up costs (which should be amortized), you will need to attach IRS 4562.

Note: Your tax preparer will need a separate list of any equipment that you purchased (purchase price and the purchase date), your start-up costs, auto expenses, and any funds that went to or from shareholders. To prevent double-counting, do not include any of these items when calculating your net income.

27-Calculate tax:

• 15% for the first $50,000 net taxable revenue
• 25% of the next $25,000 net taxable revenue
• 34% of the balance up to $9,925,000

If you are a personal service corporation, pay 35% on all net taxable revenue. Now subtract any credits or payments made.

Part I: Tax Computation. This section only pertains if you had tax credits or are a personal service corporation.

Part II: Information. Your tax advisor should help with this section. Question 5, section 263A costs, concerns businesses with over $10 million in receipts.

Part III: Balance sheet at the beginning and the end of the year.

Part IV: Reconcile accounting methods. This is only required if your assets at year-end are $250,000 or more. In this section, you must reconcile the differences between tax and book accounting (normally these are in the area of depreciation and tax credits).

What to do

Payment: If federal taxes are owed for 1120, pay online with EFTPS. Hopefully, you won't have any tax due, because the tax rules require 100% of tax to be deposited in quarterly estimated tax payments. Small corporations may pay 100% of last year's tax.

Filing: Submit 1120 to the IRS. Click here for IRS mailing addresses for form 1120.

You may also file 1120 on the web. The approved providers are listed at http://www.irs.gov/efile/lists/0,,id=119096,00.html. The providers include RIA Compliance, Internet Programming and Filing, Creative Solutions, CCH, and Drake Software.

Due date

March 15th or the 15th day of the 3rd month after the corporation's tax year-end.

Questions? Call the IRS information hotline (800) 829-4933. For forms, call (800) 829-3676 or obtain them online at http://apps.irs.gov/app/picklist/list/formsPublications.html.

An annual shareholders meeting must be held to validate your corporate status. At the meeting, directors should be elected. Then a Board of Directors' meeting should be held to elect officers. This should be documented in meeting minutes.

Many corporations hold their annual shareholders' meeting in their attorney's office (similar to an individual's annual medical check-up). It is an excellent way to discuss any questions you have, verify that your corporate status is secure, and keep your attorney current with your business so that (s)he can better serve you. Having a specific appointment will also discourage you from postponing your Annual Meeting.

Forms to use

Annual Shareholder Minutes

Waiver of Notice for Shareholders Meeting

Annual Board of Director Minutes

Waiver of Notice for Directors Meeting

Due date

Your bylaws state the required annual meeting date (section 4.02 of the bylaws).

What to do

Before your corporation's anniversary date:

• Hold your annual shareholders' meeting to elect new directors.
• Be sure to follow any notification requirements set forth in your corporate bylaws.
• Record the election in corporate minutes. We have included sample minutes which you can add to, alter or delete to fit your needs (except that you must elect directors).
• Shareholders should authorize any loans, leases or other transactions between the corporation and insiders (directors or officers) but please consult an attorney first or you may invalidate your corporate status.
• Adjourn the shareholders' meeting and hold a Board of Directors meeting with the new directors. The directors should elect officers and review the annual corporate checklist shown below. all decisions should be recorded in corporate minutes. We have included sample minutes which you may add to, alter or delete portions. If you change your officers or directors, complete a new Statement of Information.

Annual corporate checklist

You can help prevent many problems if your Board of Directors verifies each year that:

Personal and corporate funds have not been mixed.

Payments to shareholders have been documented in minutes and financial records so that each payment falls into one of the following categories:

• Salaries. If shareholders have worked directly for the corporation, they should be treated as employees with appropriate employee tax withholdings.
• Dividends. Any dividends should have been paid to all shareholders according to the percentage of shares owned - and C-corporations should have issued 1099-Div forms.
• Director fees: Director fees should only have been paid for work required as a Board member. If more than $600 was paid to a Board member, the corporation should have issued a 1099-Misc form to the IRS and the Board member.
• Interest on loans: Loans should have been documented and 1099-I should have been issued.
• Funds from shareholders should have either been documented as loans to the corporation or stock should have been issued. Either way, this should have been documented in the corporation's minutes.

The corporate minutes should show the following actions were taken by the Board of Directors:

• Elected officers
• Approved any changes to the officers' salaries
• Approved any significant transactions that the corporation has taken or expects to take
• Authorized major negotiations or contracts

You should know where these items are and verify that they are up-to-date

• Corporate minutes
• Stock register

Minutes

In addition to describing the actions that were taken, your minutes should include:

• The pros and cons of any controversial decision
• Key factors that you considered and how that decision will benefit the corporation
• Who voted for, against, or abstained from each resolution or indicate that the vote was unanimous.
• When someone leaves or arrives during the meeting in relation to the business voted upon.

Warning "inside transactions" require legal advice!

There are specific laws (Corporation Code sections 315 and 310) that you must follow if there are "insider" transactions such as loans or leases between the corporation and its directors or officers. Do not act without legal advice or you may invalidate your corporate status.

Questions? Contact your attorney.

All corporations must provide a list of corporate officers to the Secretary of State.

Annual Report

This form is used to report dividends that C-corporations paid their shareholders. Complete a 1099-Div for each shareholder who received $10 or more in dividends. S-corporations do not have to complete 1099-Div for distributions of net income, assuming that the dividends were earned after electing S-corporation status.

Shareholders should have paid quarterly estimated taxes on the dividends shown on 1099-Div with IRS 1040ES.

In practice, most small corporations don't use these forms. Either the corporation is an S-corporation or all the corporation's profits were paid out as salaries. However, if your C-corporation pays dividends, you must file these forms.

Forms to use

1099-Div Information Statement

1096 Transmittal Form

Preparing 1099s is not user-friendly. The IRS does not have a direct way to input the information online. Instead, it has authorized companies to be 1099 providers. Do a search on the Internet for current providers and prices.

How often?

Annual reporting requirement

Due date

January 31 to the recipient

To complete IRS 1099-Div

Doing it yourself is possible, but not user-friendly. You have to use official IRS forms and must prepare them using a computer or typewriter (remember those?). Here is how to do it:

Prepare a 1099 for each shareholder.

Lines and what to enter

Left side

• Payer is your corporation
• The recipient is your shareholder.
• Payer's (your company's) federal employer ID
• Recipients' identification number is their social security number.
• Leave "Account Number" blank unless you keep track of your shareholders through account numbers.

Right side

• Box 1 is for total dividends paid. There are two types of dividends: ordinary dividends and capital gain distributions. Ordinary dividends come from the corporation's net income for that year. The total should be put in Box 1b. Capital gain distributions come from two sources: income from prior years that was reinvested into the company and payback of initial investment. Total capital gain distributions should be put in Box 1c. The sum of Box 1b plus Box 1c should equal Box 1. Note: Shareholders are not taxed on capital gains that are a payback of initial investment. However, the shareholder, not the corporation, is responsible for determining at what point the value (basis) of their initial investment is being liquidated.
• Use Box 2 if you withheld income tax on behalf of your shareholders.
• Generally, the other boxes are 0.

How to complete form 1096

1096 is the transmittal form. It must also be prepared on a computer or typewriter. Prepare one form to transmit all the 1099-Div.

Lines and what to do

• Box 1: Enter your federal employer's identification number
• Box 2: Leave blank
• Box 3: Enter number of 1099-Divs you are enclosing
• Box 4: 0 unless you withheld income tax (line 4 on each 1099)
• Box 5: Add Box 1 for all the 1099-Divs.
• Check box 1099-Div 91

How to submit

• Mail copy a of 1099-Div to the IRS with transmittal form 1096
• Mail or deliver copy B to the recipient (the person you paid)
• Keep copy C for your records.

The IRS will automatically send your 1099-Div information to the state tax authority.

A few more rules

• $50 fine for ignoring them!
• Type forms - regular type style
• Use original forms - no copies
• Submit entire 8 x 11 page - don't cut it up
• Don't staple
• Don't use dollar signs, commas or other symbols, except you should use decimal points to show dollars and cents.

Questions? For forms (800) 829-3676. You cannot obtain original forms from the Internet. For information, call (800) 829-4933 or read Publication 937 Business Reporting.

This form is used to report business you have done with independent contractors (who are not corporations) and medical corporations. Complete Form 1099-Misc:

• For every individual, sole proprietorship, partnership or medical corporation which you purchased $600 or more for services (not products);
• If you purchased $5,000 or more of consumer products from a non-corporation that you intend to resell outside a permanent retail establishment;
• If you paid a non-corporation $10 or more in royalties; or
• If you paid a landlord $600 or more (and your landlord is not a corporation).

If you paid over $600 in interest (to a non-corporation), you must file IRS form 1099-I. To request this form, call the IRS at (800) 829-3676 or go to http://apps.irs.gov/app/picklist/list/formsPublications.html

Forms to use

1099-M Annual Information Form for Independent Contractors

1096 Transmittal Form

Preparing 1099s is not user-friendly. The IRS does not have a direct way to input the information online. Instead, it has authorized companies to be 1099 providers. Do a search on the Internet for current providers and prices.

How often?

Annual reporting requirement

Due date

January 31 to the recipient

February 28 to the IRS

To do it yourself

Doing it yourself is possible, but not user-friendly. You have to use official IRS forms and must prepare them using a computer or typewriter (remember those?). Here is how to do it:

Prepare 1 form for each payee.

Lines and what to do

Left side

• Payer is your company
• Recipient is the person you paid.
• Payer's federal identification number is your social security number.
• Recipients' identification number is their social security (if you paid an individual or sole proprietorship), or their SS-4 number if you paid a partnership.
• Remember, if you paid a corporation, you do not have complete a 1099-Misc.
• Leave "Account Number" blank unless you use vendor account numbers.

Right side

• Fill in the relevant boxes. Here are the most commonly used.
• 1. Rent to landlords (if you paid more than $600).
• 7. Compensation to independent contractors for services (if you paid them more than $600).
• 9. Check the box if you purchased over $5,000 of products for resale from this (non-corporate) vendor.

How to complete form 1096

1096 is the transmittal form. It must also be prepared on a computer or typewriter. Prepare one form to transmit all the 1099-Misc.

Lines and what to do

Top

1. Leave blank
2. Your social security number
3. Enter the number of 1099s you are enclosing
4. 0, unless you withheld income tax (line 4 on each 1099-Misc)
5. Add up boxes, 1,2,3,5,6,7,8, and 10 for all the 1099-Misc's Usually all but 1 and 7 are 0.

Bottom Check box 1099-MISC - 95

How to submit

1. Mail Copy A of 1099-M (the red page) to the IRS with transmittal Form 1096
2. Mail or deliver Copy B and Copy 2 to the receipient (the person or company you paid)
3. Keep copy C for your records
4. The IRS will automatically send your 1099-M information to the state tax authority.

A few more rules $50 fine for ignoring these rules:

• Type forms - regular type style
• Use original forms - no copies
• Submit entire 8 x 11 page - don't cut it up
• Don't staple
• Don't use dollar signs, commas or other symbols, except you should use decimal points to show dollars and cents.

Questions? For forms call (800) 829-3676. You cannot obtain original forms from the Internet. For information, call (800) 829-4933 or read Publication 937 Business Reporting.