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.

Form 851 Affiliation Schedule for Consolidated Corporate Returns

The IRS Form 851 is attached to Form 1120 when the parent corporation wants to include the activities of its affiliated group with the parent company tax return. The parent company attaches Form 851 and lists all of the consolidated subsidiaries.

The information required includes:

  1. Name of the parent company, employer identification number (EIN), and address
  2. Name of each subsidiary corporation, EIN, what portion of overpayment credits & estimated tax payments, and what portion of tax deposited with Form 7004 extension request.

Corporation’s can find more information in the Form 851 instructions on the IRS website.

What is an Affiliated Group?

An affiliated group is one or more chains of includible corporations connected through stock ownership with a common parent corporation.

The common parent must be an includible corporation and the following requirements must be met:

  • The common parent must own directly stock that represents at least 80% of the total voting power and at least 80% of the total value of the stock of at least one of the other includible corporations.
  • Stock that represents at least 80% of the total voting power, and at least 0% of the total value of the stock of each of the other corporations except for the common parent) must be owned directly by one or more of the other includible corporations.

For this purpose, the term “stock” generally doesn’t include any stock that:

  1. Is nonvoting,
  2. Is nonconvertible,
  3. Is limited and preferred as to dividends and doesn’t participate significantly in corporate growth, and
  4. Has redemption and liquidation rights that don’t exceed the issue price of the stock (except for a reasonable redemption or liquidation premium).

Example Form 851 in Video Tutorial

This video tutorial examines a simple Form 851 for a parent company with one wholly owned subsidiary corporation. The parent company is a U.S. corporation required to file Form 1120 and report its income, deductions, credits, and other tax items.

The subsidiary corporation is also a U.S. corporation that must file a Form 1120. By filing Form 851, the subsidiary corporation does not have to file its Form 1120. Instead, the subsidiary corporation consolidates its activities with the parent company.

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).