This guide will take you through the main considerations you need to help you prepare for corporate taxes, including types of corporations and how they're taxed, when and where to file, which form to use, and how to estimate corporate taxes. U.S. corporations are complex entities, and their taxes are even more so.
Relief Measures for Corporations
Corporations affected by the economic downturn in 2020 and 2021 can take advantage of several new tax credits, including:
- An Employee Retention Credit (ERC) that encourages businesses to keep employees on their payroll
- Emergency Paid Sick Leave and Family Medical Leave tax credits for businesses that must pay sick- and family-leave benefits to employees affected by the ongoing public health crisis
Both of these credits were originally scheduled to end on December 31, 2020, but they were extended by subsequent legislation. The ERC was slightly modified and extended through June 30, 2021. The sick- and family-leave credits were extended, as they were, through March 31, 2021. Businesses are no longer required to provide this type of leave, but they can claim tax credits if they do.
U.S. Corporations and Income Taxes
Corporations are a special kind of business, because, unlike other businesses, they're a separately taxpaying entity. Corporations are owned by their shareholders. They pay taxes on earned income, and then shareholders are taxed on dividends they receive.
There are two basic types of corporations in the U.S.—C corporations (usually just called "corporations") and S corporations (for the section of the Internal Revenue Code that applies to this business type). Both have the same basic structure, using articles of incorporation to incorporate within a specific state or states. Both types of corporations have corporate by-laws and a board of directors. An S corporation is created first as a C corporation, then files to elect S corporation status.
Corporate Tax Rate Reduction and Other New Changes
The 2017 Tax Cuts and Jobs Act made some changes that affected corporations and S corporations. The biggest change was the elimination of the tax schedule and a new flat corporate income tax rate of 21% of corporate net income. The change in the corporate tax rate didn't affect S corporations, because their owners are taxed on earnings on their personal tax returns.
Other tax law changes (both benefits and drawbacks) affecting corporations include:
- Increased depreciation expense deductions
- More businesses can use cash accounting
- Lower interest rate deduction for larger businesses
- Meal expense deductions limited, and entertainment expenses eliminated
- Most commuting expense deductions for employers eliminated
The Internal Revenue Service (IRS) extended the 2021 tax filing deadline to June 15, 2021, in Texas and surrounding states that were declared winter-storm disaster areas. This includes Oklahoma and Louisiana and extends to businesses. Another extension has been provided to all other individual taxpayers, from April 15 to May 17, but this does not apply to corporations.
Tax Return Due Dates
Outside the winter-storm disaster extensions, here are some important due dates to keep in mind. They are pushed back to the next business day when they fall on a weekend or a holiday.
Corporate Tax Returns
Corporations with a December 31 year-end have a tax return filing deadline of April 15. The tax return is due on the 15th day of the fourth month after year-end for corporations with a fiscal year-end other than December 31. The only exception is when a corporation's fiscal year ends on June 30. The corporation must file tax returns by the 15th day of the third month after year-end (September 15) in this case.
S Corporation Tax Returns
S corporations must usually take a calendar year-end date (December 31) to agree with the personal tax year-end, unless it can establish a reasonable business purpose for a different date. The filing date and tax return due date are the 15th day of the third month after the tax year-end—in other words, taxes are due March 15 for almost all S corporations.
Corporations' and S Corporations' Tax Forms
Corporations file their taxes on Form 1120. S corporations file their federal income taxes using Form 1120-S. S corporation shareholders report their share of corporate income or loss on a Schedule K-1, Shareholder's Share of Income, Deductions, Credits.
How to File
You can file your corporate or S corporation tax return by mail, or you can have your tax preparer e-file it. Certain corporations with assets of $10 million or more that file at least 250 returns per year must e-file. On the IRS website, you can find the correct addresses to use when filing your Form 1120.
Before You Prepare Your Tax Return
You'll have to provide some financial reports and other documents to your tax preparer to file your corporate or S corporation income tax return. These documents include information about the cost of goods sold, dividends, and many other aspects of operating a corporation. See the Instructions for Form 1120 for more details on filing your corporate tax return.
Estimated Taxes, Amended Tax Returns, and Extension Applications
Here are a few final notes on filing federal taxes for a corporation.
Paying Corporate Estimated Taxes
Corporations must pay estimated taxes if their expected tax bill is $500 or more. They calculate and file estimated taxes on IRS Form 1120-W. The installments are generally due by the 15th day of the fourth, sixth, ninth, and twelfth months of the tax year. This would be April 15, June 15, September 15, and December 15 for a corporation that uses the calendar year.
Filing an Amended Corporate Return
If a corporation must use Form 1120x if it needs to amend a previous year's tax return.
Applying for a Corporate Tax Return Extension
Corporations receive automatic approval on extension applications, but they must still file the application using Form 7004. The form must be filed by the due date of the corporate tax return, and they must pay the taxes due by this date.
State Corporate Taxes
Corporations must also pay income taxes to the state or states where the business is incorporated if those states have corporate taxes. Go to the website of your state's department of revenue or similar agency to find out more about your state's corporate tax rates and filing instructions.
Getting Help with Corporate Income Taxes
Income taxes for corporations and S corporations are complicated. It's usually best to get help from a CPA or tax professional who is familiar with corporate taxes rather than attempt to prepare this return on your own. Review basic information about business taxes that you should know before you enlist the help of a CPA, enrolled agent, or another qualified tax preparer to prepare your corporation's taxes.