Basics on the Form 1120 Corporate Income Tax Return

The IRS Form 1120 (US Corporation Income Tax Return) is the official form that corporations in the United States use to report their income, gains, losses, deductions, and credits to the Internal Revenue Service (IRS).

This form is used to calculate the amount of federal income tax a corporation owes. A corporation will often need to file a state corporate income tax return, depending on where the corporation operates.

Schedule PH For Personal Holding Companies

This video tutorial covers the Schedule PH (US Personal Holding Company PHC Tax) which is filed with Form 1120 corporate income tax returns. A corporation that is a PHC must self assess any taxes and include Schedule PH with its tax return.

What is a Personal Holding Company (PHC)

In general, a corporation becomes a PHC if it meets both of the following tests:

  1. PHC Income Test. At least 60%of the corporation’s adjusted ordinary gross income is PHC income.
  2. PHC Stock Ownership Requirement. At any time during the last half of the tax year, more than 50% in value of the corporation’s stock is directly or indirectly owned by five or fewer individuals.

The following shareholders are considered individuals for purpose of this test:

  1. A qualified pension, profit-sharing, or stock bonus plan described in section 401(a).
  2. A trust described in section 501(c)(17) that provides for the payment of supplemental unemployment compensation under certain conditions.
  3. A private foundation described in section 509(a).
  4. A part of a trust permanently set aside or exclusively used for the purpose described in section 642(c).

The PHC tax is a 20% tax imposed on the PHC’s undistributed personal holding company income (PHCI). PHCI generally includes portfolio income, such as interest, dividends, capital gains, rents, royalties, and personal service contracts.

Sample Schedule PH Tutorial

In this example, a closely held corporation has one shareholder and generates all of its revenues from personal service contracts which constitute personal holding company income. The corporation is preparing its 2020 Form 1120 corporate tax return. The corporation prepares its Form 1120 and includes Schedule PH to calculate the undistributed PHC income and 20% tax.

What are the Basics of the Form 1120 Tax Filing?

Income & Expense Reporting. To report the corporation’s income, expenses, gains, losses, credits, estimated tax payments, and other transactions.

Tax Calculation. Corporations are generally subject to a 21% tax rate on its net taxable income. The tax rate is subject to change depending upon legislation passed by Congress.

A corporation’s net taxable income may differ from its net income per books. The corporation reports any book-to-tax adjustments on Schedule M-1 or Schedule M-3. For example, many corporations keep their internal accounting records using generally accepted accounting principles (GAAP), which often differ from U.S. federal tax rules.

Who Must File

C Corporations. Domestic corporations must file Form 1120 annually. Most domestic corporations are, by default, taxable as a C corporation. If a company forms a limited liability company (LLC) that elects to be taxed as a C corporation by filing Form 8832 (Entity Classification Election), the LLC must file Form 1120.

Due Date. Form 1120 must be filed annually and is due on or before the 15th day of the 4th month following the close of the corporation’s tax year. For a calendar year corporation, the due date is generally April 15. Extensions can be requested by filing Form 7004 (Application for Extension of Time to File).

Additional Schedules and Tutorials

YouTube Form 1120 Playlist

Please view our YouTube playlist here for a complete collection of Form 1120 related tutorials.

Additional Information

Corporations can find more information in the Form 1120 Instructions and IRS Publication 542 (Corporations).