If you’re a commercial lender, you know the challenge of explaining the tax form 1120-S to potential borrowers. This document can be confusing, and it’s often hard to find the right words to help people understand. But with just a bit of help, you’ll be able to complete it like a pro.
Today, we’re going to explore what you need to know about 1120-S, including what it is and how borrowers can fill it out.
Table of Contents
What Is Tax Form 1120-S?
Tax Form 1120-S is a form businesses use to report their income and expenses. To begin with, the first thing you need to know is that 1120-S is used by businesses that are considered “pass-through” entities. This means that the business’s income is taxed at the individual rather than at the corporate level.
A few different businesses fall into this category, including S corporations, LLCs and partnerships.
Once you’ve determined that the business is a pass-through entity, you’ll need to gather all the necessary information to complete the form. This includes the business’s income and expenses and the owners’ names and social security numbers.
You’ll also need to determine the tax year that the business is reporting. This is the calendar year or the fiscal year that the business uses.
Once you have all of the important information, you’ll be ready to complete the form.
Who Needs to File Tax Form 1120-S?
When it comes to filing taxes, there are a few different forms that businesses may need to use. One of these is Form 1120-S, which companies classified as S corporations use. S corporations are businesses that have elected to be taxed as small businesses under the Small Business Jobs Act of 2010.
To qualify for this tax status, an S corporation can only offer one class of stock and should have no more than 100 shareholders. In addition, electing to be taxed as an S corporation can provide certain tax advantages, such as the capability to deduct certain business expenses on the shareholder’s tax return.
This form is used to report the income, losses and dividends of an S corporation, and it’s important to be sure that it’s filed correctly to avoid any penalties.
Benefits of Filing Tax Form 1120-S
There are several different benefits that come with filing Tax Form 1120-S. One of these is that it can help reduce the amount of taxes that a business owes. This is because S corporations are only taxed on their net income, which means expenses and losses can be deducted from the total income.
Another benefit of filing Tax Form 1120-S is that it can help protect the shareholders’ assets. S corporations are treated as separate legal entities from their owners. This means that the shareholders are not liable for the debts and liabilities of the corporation.
Finally, filing Tax Form 1120-S can help make it easier for a business to raise capital. This is because investors are more likely to invest in a business that is taxed as an S corporation. This is because they know that their assets are protected if the business fails.
Penalties for Not Filing Tax Form 1120-S
Any business required to file a Tax Form 1120-S but doesn’t can face some pretty harsh penalties. The first offense includes a minimum fine of $195, while subsequent offenses can result in a fine of up to $1,000. In addition, the business may be subject to an audit by the IRS.
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In addition to the penalties mentioned above, businesses can face other penalties for not filing a tax form 1120-s. These can include a loss of tax-exempt status, late fees and interest charges.
It’s important to note that if a business is required to file a Tax Form 1120-S and doesn’t, the IRS can also impose personal penalties on the company’s officers. These officers can be fined up to $10,000 and may even face jail time.
As you can see, there are some pretty significant penalties for not filing a Tax Form 1120-S. If a business is required to file this form, it’s important to ensure that it’s done correctly and on time to avoid any of these penalties.
Challenges of Filing Tax Form 1120-S
While there are some benefits to filing Tax Form 1120-S, there are also some challenges. One of these is that it can be difficult to calculate the correct amount of taxes owed. This is because S corporations are only taxed on their net income.
Another challenge with filing Tax Form 1120-S is that it can be time-consuming. This is because businesses must provide a lot of information on the form, including financial statements and tax returns.
Finally, businesses may find it difficult to file Tax Form 1120-S if they don’t have much experience with tax forms. This is because the form can be confusing and complicated.
The Right Technology
As a lender, the last thing you want is your borrower to face penalties from the IRS for not filing their Tax Form 1120-S. This is why it’s important to choose the right tech solution to help with the process.
There are a few different things to look for in a tech solution, including the ability to automate the process of filling out the form. This can help to save a lot of time and make it easier for businesses to get the form filed correctly.
Another important thing to look for is the ability to generate reports. This can help businesses keep track of their progress and ensure that they’re on track to file correctly.
Finally, it’s important to choose a tech solution that is easy to use. A solution that’s easy to use can help make filing simpler and less daunting.
How Does FlashSpread Help?
FlashSpread uses patented technology to read the data of scanned tax returns. Then it presents that data to you for review and makes it instantly accessible in various financial reports, including a global analysis. This makes it quick and easy to review the data and ensure that everything is completely accurate.
FlashSpread offers several advantages over similar solutions. Unlike many other Financial software systems, FlashSpread automatically updates your borrower’s tax information each year. You don’t have to spend time adjusting tax forms or worrying about year-to-year changes when you use FlashSpread.
FlashSpread is the easy way to stay on top of your borrower’s Tax Form 1120-S. With our help, you can be confident that the form is being filed correctly and on time. Contact us today to learn more about how we can help you.