What is the Difference Between the 1120 and 1120-s Forms?

I was confused by these forms when I first incorporated. My accountant explained that the form you file depends on your corporation's tax classification, not simply the size of the business.

One thing I learned is that changing from a C corporation to an S corporation involves eligibility rules and elections. It's not something to do without professional advice because there can be tax implications depending on your circumstances.

I own a small family business that elected S corporation status. We file Form 1120-S, but the business itself generally doesn't pay federal income tax in the same way a C corporation does. Instead, the income and certain tax items are passed through to the shareholders, who report them on their own tax returns.

For us, this structure worked well because there were only a few shareholders, but our CPA emphasized that not every business qualifies to make an S corporation election.

I started with a C corporation because we expected to seek outside investment. We file Form 1120 every year, and the corporation pays tax on its taxable income. Our CPA handles the return since there are quite a few reporting requirements.

When we were deciding on the business structure, our accountant explained the differences between C corporations and S corporations, but staying as a C corporation made more sense for our long-term plans.

When should I file a Form 1120 and Form 1120-S?

Here are the major differences between the Form 1120 and 1120-S. 

• Form 1120 entity type is a C corporation, whereas Form 1120-S is an S corporation entity. 
• Form 1120 is taxed at the corporate level, and Form 1120-S is taxed pass-through. 
• Form 1120 can have an unlimited number of shareholders. On the other hand, Form 1120-S can only have fewer than 100 shareholders. 
• Form 1120 can be filled out by any type of shareholder, whereas Form 1120-S is only restricted to some of the shareholders. 
• On the 1120, you get corporate tax rates, and on the Form 1120-S, you get the individual tax rates. 
• The Form 1120 grants you the benefits of double taxation, and with Form 1120-S, you cannot get double taxation. 
• Foreign shareholders are allowed on the Form, but on the Form 1120-S, foreign shareholders are not allowed. 
• In the Form 1120, multiple classes are allowed, but on the Form 1120-S, only one class of stock is allowed.