IRS Instruction 1120-S – IRS Forms, Instructions, Pubs 2026

IRS Instruction 1120-S – IRS Forms, Instructions, Pubs 2026 – If you’re managing an S corporation, understanding the IRS Form 1120-S and its accompanying instructions is crucial for accurate tax reporting and compliance. Form 1120-S, the U.S. Income Tax Return for an S Corporation, allows pass-through entities to report income, losses, deductions, and credits without paying corporate-level taxes. Instead, these items flow through to shareholders’ personal returns. The 2025 instructions provide updated guidance tailored to recent legislative changes, ensuring S corps can navigate filing requirements efficiently.

In this SEO-optimized guide, we’ll cover everything from what’s new in the 2025 IRS Instructions for Form 1120-S to filing deadlines, key sections, and tips for avoiding penalties. Whether you’re a small business owner or tax professional, this article draws from official IRS sources to help you file confidently.

What Is IRS Form 1120-S and Why Do S Corporations Need It?

Form 1120-S is specifically designed for domestic corporations that have elected S corporation status via Form 2553. This election treats the entity as a pass-through for tax purposes, meaning shareholders report their share of the corporation’s income on their individual tax returns (typically Form 1040). The form reports the S corp’s overall financial activity, including gross income, deductions, and credits, but the corporation itself generally doesn’t owe income tax—exceptions include built-in gains tax or excess net passive income tax for former C corps.

The instructions (IRS Publication i1120s) explain how to complete the form, attach schedules like K-1 for shareholders, and handle special situations such as terminations or amendments. Failing to file accurately can lead to penalties, so staying updated is essential for S corporation tax compliance.

What’s New in the 2025 IRS Instructions for Form 1120-S?

The IRS regularly updates Form 1120-S instructions to reflect tax law changes. For tax year 2025 (returns filed in 2026), key updates include:

  • Increased Penalty for Late Filing: The minimum penalty for returns more than 60 days late is now the smaller of the tax due or $525, up from previous amounts. This applies to filings required in 2026.
  • Electronic Payment and Refund Enhancements: The IRS emphasizes using direct deposit for refunds (new lines 28c–28e) and electronic payments for balances due. Overpayments can be credited to next year’s estimated tax via line 28a.
  • Section 336(e) Election Due Date: S corps must file Form 1120-S with an attached election statement by the 15th day of the third month after a qualified stock disposition.
  • Domestic Research Expenditures: Under new section 174A, these can be deducted or amortized over 60+ months. Transition rules apply for pre-2025 capitalizations; report using new code BA on Schedules K and K-1.
  • Qualified Sound Recording Productions: Eligible for deductions under expanded section 181, including 100% bonus depreciation for assets acquired after January 19, 2025. Productions starting before January 1, 2026, qualify.
  • Gain from Qualified Farmland Sales: New section 1062 requires a separate Schedule A (Form 1062) for sales to qualified farmers; report via code ZZ on Schedules K/K-1.
  • Interest on Rural/Agricultural Loans: Partial 25% exclusion under section 139L for qualified lenders; report with code ZZ.
  • New Schedule K/K-1 Codes: Includes BA for research, ZZ for farmland gains and rural loan interest.
  • Installment Method Updates: Applies to farming property dispositions and certain sales; interest may apply under section 453(l)(3).
  • Digital Assets Reporting: Must disclose if received, sold, or disposed of during the year; use Form 8949 and Schedule D for gains/losses.
  • Expanded Filing Exceptions for Schedules K-2 and K-3: Small S corps with less than $250,000 in receipts and assets may be exempt. Domestic filing exceptions now don’t require subsequent filings unless requested.
  • Other Changes: Updates to vehicle lease inclusions, no deductions for lobbying contributions, and emphasis on electronic filing mandates for larger entities.

These changes stem from legislation like the One Big Beautiful Bill Act (P.L. 119-21) and aim to simplify reporting while addressing new incentives for research, agriculture, and clean energy.

For future developments, check IRS.gov/Form1120S regularly, as post-publication changes may occur.

Who Must File Form 1120-S?

Any domestic entity with a valid S election (via Form 2553) must file Form 1120-S if it has income, losses, or credits to report—even if inactive but with an election in effect. Exceptions include truly dormant corporations with no activity. Former C corps may owe taxes on built-in gains or passive income.

Shareholders receive Schedule K-1 to report their pro-rata shares on personal returns. If the election terminates (e.g., due to excess passive income or revocation), mark the final return accordingly and seek relief if inadvertent.

When and Where to File Form 1120-S for 2025

  • Due Date: The 15th day of the third month after the tax year ends (March 15, 2026, for calendar-year filers). For fiscal years starting in 2025, adjust accordingly.
  • Extensions: File Form 7004 by the original due date for an automatic six-month extension.
  • Where to File: Depends on state, assets, and receipts. For example:
    • Under $10 million assets (no Schedule M-3): Kansas City, MO.
    • $10 million+ assets: Ogden, UT. Check the instructions for exact addresses.
  • Electronic Filing: Mandatory if filing 10+ returns, assets ≥$10 million, or certain thresholds met. Waivers available for hardships; religious exemptions noted.

Penalties for late filing can reach 25% of unpaid tax plus $255 per month per shareholder (minimum $525 if over 60 days late). Use EFTPS for payments if owing $500+ in estimated taxes.

How to Complete Form 1120-S: Key Sections from the Instructions

The 2025 instructions break down the form into general and specific guidance:

General Instructions

  • Accounting Methods: Use cash, accrual, or hybrid; small businesses may change inventory methods.
  • Recordkeeping: Retain records for at least three years, including AAA (accumulated adjustments account) and elections.
  • Amended Returns: Check box H(4) and explain changes; amend K-1s if needed.

Specific Instructions

  • Income (Lines 1–5): Report gross receipts, COGS (via Form 1125-A), net gains from Form 4797, and other income like interest or recoveries.
  • Deductions (Lines 7–20): Include compensation, salaries, rents, taxes, interest (limited by §163(j) via Form 8990), depreciation (Form 4562), and other items like meals (50% limit) or contributions (with AGI caps).
  • Taxes and Payments (Lines 23–28): Calculate excess passive income, built-in gains (Schedule D), recaptures, and overpayments/refunds.
  • Schedules:
    • Schedule K/K-1: Totals and shareholder shares; include QBI info for §199A deductions.
    • Schedule B: Other information like business codes and digital assets.
    • Schedule M-2: Distributions from AAA, PTEP, etc.
    • Attach forms like 8990 (interest limits), 7205 (energy credits), or 8886 (reportable transactions).

For detailed line-by-line guidance, refer to the official instructions.

Download the 2025 IRS Instructions for Form 1120-S

To access the full details, download the official PDF from the IRS website: https://www.irs.gov/pub/irs-pdf/i1120s.pdf. This document includes worksheets, examples, and all schedules needed for accurate filing.

You can also order forms via IRS.gov/OrderForms or get help from the Taxpayer Advocate Service at 877-777-4778 if facing IRS issues.

Common Mistakes and Tips for S Corporation Tax Returns

  • Avoid “See Attached” Placeholders: Provide all details directly on the form.
  • Electronic Filing Compliance: Larger S corps face penalties for paper filing.
  • Basis Tracking: Shareholders use Form 7203 for stock/debt basis limitations.
  • QBI Deduction: Ensure proper aggregation and reporting for §199A benefits.
  • Digital Assets: Don’t overlook reporting requirements to avoid audits.

Consult a tax professional for complex situations like foreign income or credits.

Conclusion: Stay Compliant with IRS Form 1120-S

Filing Form 1120-S correctly ensures your S corporation maintains its tax advantages while avoiding costly penalties. With the 2025 updates focusing on penalties, agricultural incentives, and electronic processes, now’s the time to review your records. For the latest info, visit IRS.gov/Form1120S.

This guide is based on official IRS resources as of February 10, 2026—always verify with the IRS for any post-publication changes.