Creating a basic return for a Subchapter S Corporation is done in the Business Program of the TaxSlayer Pro by following the steps below. To assist your preparation of an 1120-S return review the IRS instructions for Form 1120-S, US Income Tax Return for an S Corporation. This publication contains line by line instructions detailing the transactions that need to be entered on each line of the 1120-S return. A 1120-S return has four basic areas that need to be completed, each of which will be covered below. Specifically, the preparer needs to address each of the following areas:
- Enter basic information about the corporation and the return (Steps 1- 7);
- Enter the various income, deductions and items being distributed to the shareholder (Steps 8-14);
- Enter the information on the K-1 for the various shareholders (Steps 15-18); and
- When applicable enter the Balance Sheet and reconcile Book Income (Loss) to the tax return (Steps 19-22).
Step 1 – From the Quick Menu of TaxSlayer Pro select Business, then 1120S – S-Corporation Return.
Step 2 – Enter the EIN of the S Corporation. You will be queried if you want to create a new return. Select YES.
Step 3 – Form 1120S – Company Information Menu - Enter the corporation's Name, Address, and the Date of Incorporation (which is the date the Articles of Incorporation were filed with the state of incorporation). When finished, select OK.
Step 4 – Name & Address Menu - The corporation information that you have entered will be displayed in this menu. Enter the Name, Title, and Contact Phone Number for the Officer of the corporation that is responsible for the filing of the tax return. This information is required and must be entered in order to electronically file the return. From this menu you may also enter an optional e-mail address for correspondence from the IRS to the corporation. Exit the menu to be taken to the Heading Information Menu.
Step 5 – Heading Information Menu
Total Assets - Enter the Total Assets of the corporation if the entity is not required to complete a Schedule L (as determined by the accounting method regularly used in keeping the corporation's books and records). If the corporation has assets and gross receipts of at least $250,000, you are required to complete Schedule L and will not enter the Total Assets on this menu. Instead, the Total Assets will be pulled into the return when you complete Schedule L in Step 19 below. If the corporation has no assets at the end of the year, enter '0'.
Fiscal Year - Enter the Fiscal Year dates only for a corporation that operates on a fiscal year. Most corporations operate on a calendar year, so no entry should be made in this field for any calendar year reporting companies.
Step 6 – Other Information - In order to electronically file the return, you must enter a valid Business Code and the Date of the S Corp Election. The S Corp Election would have previously been made on Form 2553 and was the corporation's official notice to the IRS that it was electing to be treated as an S Corporation for tax purposes. Form 2553 should have been filed with the IRS by the 45th day of the tax year in which the election was to be effective. If the election has not yet been made, see the Instructions for Form 2553 to determine how to proceed and if the entity is eligible for relief from late S Corporation election. If the entity is a Limited Liability Company (LLC), it must file Form 2553 in order to be considered an S Corporation. Once you have completed this section and if everything is correct, exit the Heading Information Menu and return to the Main Menu of the return (1120-S).
Step 7 – Schedule B - From the main menu of the return, select Schedule B – Other Information. You should review and answer each of the items found on Schedule B. The answers to questions in this section will control what sections of the return will ultimately need to be completed. You must the answer the questions regarding the Method of Accounting (Cash, Accrual or Other), Business Activity and Product or Service. The remaining items will be answered if applicable since the program has a default answer of 'NO” for most questions. Pay special attention to #14 Receipts and Assets at year end less than 250,000", which defaults to "NO". (In 2017 and prior year programs, this question was item #13.) If the corporation's asset and receipts are less than $250,000 at the end of the tax year, you should change this to 'YES' and you will not have to complete Schedule L (Balance Sheet); Schedule M-1 (Reconciliation of Income) and Schedule M-2 (Accumulated Adjustments). Once you have completed this section and if everything is correct, exit the Other Information Menu.
Note: In the following Steps 8-14, you will enter the Income, Deductions and certain Distributive Share Items that will passed through to the Shareholders on their K-1s. You should skip any step in this section that is not applicable to the S-Corporation and only complete those items that are necessary for the return.
Step 8 – Income - From the main menu of the return (Form 1120-S) select Income. Enter the appropriate trade or business activity income. Do not report rental income, portfolio income or other passive income items in this section. These items are distributive items that are allocated directly to the S Corporation's Shareholders and will be entered later in the return. Once you have entered all activity income, exit the menu.
Step 9 – Deductions - From the main menu of the tax return (Form 1120-S) select Deductions and enter only trade or business activity deductions/expenses. As with the Income in Step 8, do not report any rental activity expenses, deductions allocable to portfolio income or non-deductible expenses in this section. If you do not have any activity income or expenses, then Lines 1– 21 of the 1120-S will not have any entries on the form when the return is filed. Once you have entered all expenses and deductions related to the activity income, exit the menu.
Step 10 – Schedule K - From the main menu of the tax return (Form 1120-S) Menu, select Schedule K – Distributive Share Items. Select Income (Loss). Enter any income or loss for any Rental Real Estate Activities, as well as any portfolio activities such as Taxable Interest, Dividends, Royalties or Capital Gains that the S Corporation received. Once you have entered all Rental Real Estate and Portfolio income, exit the 'Income (Loss)' Menu to return to the Schedule K Menu.
Step 11 – From the Schedule K Menu, select Other Deductions. Enter certain deductions associated with the S Corporations that are given special treatment on the Shareholder's tax return. These types of deductions include Section 179 Expenses, Contributions, Investment Expenses and Section 59(e)(2) expenditures. Next, select Other Deductions and enter any Other Deductions associated with the corporation. Once you have entered all Deduction Items, select exit to return to the Schedule K Menu.
Step 12 – From the Schedule K Menu, review the items in the Credits Menu, Foreign Transactions Menu and the Alternative Minimum Tax Items Menu (which include Depletion and Oil & Gas activities). Each of these sections of the Schedule K involve technical items in their respective areas that will be passed through to the individual shareholders on their K-1s.
Step 13 – From the Schedule K Menu, select Items affecting Shareholder Basis. The items in this section will impact the basis of the shareholder(s). It is in this section that you will enter tax exempt income and nondeductible expenses. You will also enter as a 'Property Distributions' any cash distributions and the fair market value of any property that is distributed to the shareholder. Finally, you will enter any repayment of loans to the corporation from shareholders in this section. Once you have entered all these of items return to the Schedule K Menu.
Step 14 – From the Schedule K Menu, select Other. It is in this section that you will enter Investment Income and Investment Expenses which will be distributed to the shareholders. Also enter Dividends paid by the corporation from accumulated earnings and profits. These items will impact the shareholders' tax return when they calculate the Net Investment Tax, as well as impacting the Shareholder's basis.
On this Schedule K - Other Menu you will enter all Section 199A information that is to be distributed to the shareholders on their respective Schedule K-1. In this menu you should enter the Qualified Business Income, the unadjusted basis of Qualified Property and W-2 Wages paid by the corporation. Also, any REIT dividends or Publicly Traded Partnership income (or loss received by the corporation would be entered here. Once you have entered all these items select Exit to return to the Schedule K Menu. For additional information on the Section 199A entries in TaxSlayer Pro see: Making QBID entries involving an S-Corporation (Form 1120-S).
Step 15 – At this stage of the return all of the income, deductions and credits for the corporation should have been entered in the return. Next, a Schedule K-1 must be created for each shareholder in the corporation. Note that in the Schedule K Menu, the default setting for "Automatically Distribute Schedule K Information" is set to YES. This allows the program to distribute the items previously entered in the tax return to each shareholder's K-1 based on the criteria that you will enter in Step 16. If you chose to override this automatic distribution, you will need to select NO and make the input the entries directly in the K-1.
Step 16 – From the Schedule K Menu, select Schedule K-1 Input and select New. You will be asked if the shareholder is an individual. Select Yes or No as appropriate. (If you select Yes you will enter the SSN plus the individual's name; if you select No you will enter the entity's EIN and name.) You will also enter the shareholder's address, the percentage of ownership at the end and beginning of the year, and the number of days the beginning percentage was in effect. These entries allow the program to calculate the correct distribution of income, expenses, and other distributions to the respective shareholder. This step should be repeated for each shareholder until 100% of the corporation's ownership has been allocated. (Note that upon exiting the Schedule K-1 menu, if the total allocation doesn't add to 100%, you will be prompted to correct the percentages as needed.)
Step 17 – Schedule K-1 Edit Menu - Review the shareholder's information. Any changes to the previously entered information can be made from this menu. If you want to review or edit any items that are automatically pulled onto the shareholder's K-1, select Distributive Share Items. The program automatically distributes the amounts from Schedule K to each shareholder based on the percentages entered in Step 16. After reviewing and/or editing entries on the K-1, select Exit to return to the Schedule K-1 Edit Menu.
Step 18 – Shareholder's Basis Worksheet - From the Schedule K-1 Edit Menu select Shareholder's Basis Worksheet. This worksheet is used to track the shareholder's basis in the corporation. Enter the beginning basis balance for each Shareholder's basis and/or otherwise make adjustments to the Shareholder's Basis to reflect capital contributions, shareholder loans to the corporation, etc., that may have occurred during the year. Once you have made these Worksheet entries, your K-1s should be complete. Select Exit and return to the Main Menu of the tax return (Form 1120-S).
If in Schedule B at Step 7 you answered YES to the inquiry "Receipts and Assets at year end less than 250,000", you are NOT required to complete Schedule L. Skip Steps 19-22 and proceed directly to Step 23. You do not have to complete Schedule L, Schedule M-1 and Schedule M-2, and you do not need to open any of these Menus. When these menus are opened, the program will automatically generate certain sections of the Schedules.
If in Schedule B at Step 7 you answered NO to the inquiry "Receipts and Assets at year end less than 250,000", you are required to complete Schedule L – Balance Sheet, and should proceed to Step 19.
Step 19 – Schedule L - Balance Sheets - From the main menu of the 1120-S Menu, select Schedule L – Balance Sheets. Select each asset corresponding to corporation's accounting records and enter the appropriate balances in each asset classification. These asset classifications match what the IRS is seeking on the Schedule L. For any assets that are classified as "Other Current", "Other Investment" or "Other Assets" on the balance sheet, you will create a Supplemental Statement. The program will prompt you to create the Supplemental Statement when you make entries in these fields. The program will also automatically pull certain assets to the balance sheet if those assets have been entered in the Depreciation Module.
Step 20 – After you enter the assets for the corporation, enter the liabilities into the balance sheet. Select Total Liabilities & Capital from the Schedule L Assets Menu. For any liabilities that are classified as "Other Current" or "Other Liabilities" on the balance sheet, you will create a Supplemental Statement. The program will prompt you to create the Supplemental Statement when you make entries in these fields. The program will also automatically pull certain equity positions into the balance sheet from the Shareholder Basis Worksheets, as well as any adjustment to retained earnings that have been generated as a result of the income entries on the return. Any adjusting entries to the Shareholder's Equity that is not shareholder specific such as Treasury Stock changes will be entered on this screen. However, most equity adjustments would normally be made on the individual Shareholder's Worksheets found in the Shareholder's "Schedule K-1 Edit Menu".
While working in the balance sheet, the program will provide a balance at the bottom of the menu. The "Total Liability & Equity", "Total Assets" and the "Difference" will be displayed to assist in getting the Balance Sheet to balance. If you have a beginning balance in retained earnings, the balance sheet may be out of balance until you complete Step 22 and reconcile the items that affect retained earnings. Once you have completed this Menu, you should have a balance sheet that is in Balance. Select Exit to return to the Main Menu of the tax return (Form 1120-S).
Step 21 – Schedule M-1 - Reconciliation - You must reconcile any differences between the book income (loss) of the corporation to the income (loss) being reported on the tax return. From the main menu of the tax return (Form 1120-S) select Schedule M-1 – Reconciliation. You should enter this menu to generate the Schedule even if no adjustments will be made. Adjust any items that are different from book income (loss) to the income (loss) on the tax return. The program will pull many of these items from other areas of the return. The most common item that may need adjustment is depreciation which may be different on the company's books than on the tax return. This is primarily due to the practice of taking bonus depreciation on a tax return but using more conservative practices on the books of the company. A depreciation adjustment can either increase book income (loss) or decrease book income (loss). Once these entries have been completed, select Exit to return to the Main Menu of the tax return (Form 1120-S).
Step 22 – Schedule M-2 - The final schedule that needs to be included on the tax return is Schedule M-2 - Analysis of Accumulated Adjustments Account, Other Adjustments Account, and Shareholder's Undistributed Taxable Income Previously Taxed. From the Main Menu of the tax return (Form 1120-S), select Schedule M-2. You should enter this menu to generate the Schedule even if no adjustments will be made. If any Other Additions or Reductions entries are made, the program will prompt you to complete a supplemental statement describing the adjustment.
Step 23 – Mark Return Electronic - When all entries have been complete on the tax return, from the Main Menu of the tax return (Form 1120-S), select Mark Return Electronic if you want to e-file the return. If you have failed to enter certain required information the program will prompt you to correct the items before proceeding. Once you have successfully marked the return for e-file, you will be able to transmit the return from the Electronic Filing Menu which is accessed from the Business Main Menu after exiting the return. To exit the return press enter or select the Exit button.
Step 24 – Receipt Menu - Select Exit from the main menu of the tax return. The Receipt Menu displays an overview of the calculated fees. You have the option to view and edit the invoice or enter a payment. When you exit the receipt menu you will be asked “Are You Ready to Mark the Return Complete?” Answer "NO” if the return is not complete. Answer "YES” to mark the return complete and exit back to the TaxSlayer Pro Business menu.
Note: This is a guide on entering Form 1120-S, US Income Tax Return for an S Corporation into TaxSlayer Pro. This is not intended as tax advice.