The tax return Form 1120-S is for those types of companies that are registered as S corporations, a kind of corporation that prevents double taxation at the corporate and personal levels. The tax form is used by S corporations to record their earnings, losses, and deductions for the fiscal year. The business revenue is recorded on the shareholders’ personal income tax returns since S corporations are pass-through tax entities, which means the money “passes through” to the owners. S corporations do not pay company tax; instead, income is taxed at the personal income tax rate of the proprietors.
S corporations need Form 1120-S because it not only reports income but also notifies the IRS of how much of the firm is held by individual shareholders. Any tax payments or refunds owing to shareholders on their personal income tax returns will be determined as a result of this. The major reason for forming an S corporation is to transfer tax obligations to the owners of the company. Ensuring that this information is appropriately submitted to the IRS guarantees that the company receives this advantage.