This guide walks you through the key sections of your business tax return (S Corp Form 1120-S) so you can confirm the numbers match your books and catch any errors before filing. You'll also see how your business income flows to your Schedule K-1, the document you'll need for your personal return.
Why This Matters
Reviewing your Form 1120-S is a vital step in ensuring your business financials are accurately reported to the IRS. Understanding how your business activity flows from your daily bookkeeping into this formal document helps you maintain a clean financial baseline and stay in good standing.
Page 1: Form 1120-S
This is your Profit & Loss in tax form. If you’ve been tracking your financials in Collective throughout the year, these numbers should look familiar:
- Total income: Gross receipts or sales your business generated.
- Total expenses: Deductible business costs (what Collective has helped you track monthly).
- Net profit (or loss): What’s left after expenses, your business earnings, which flows to your K-1 and gets taxed on your personal return.
Page 2: Schedule B (Other information)
This section covers various compliance questions and technical details about your business operations. Key items include:
- Information reporting: Confirmation of whether required forms, such as Forms 1099, have been or will be filed. Collective assists with the 1099 process for eligible contractors paid through Collective payroll.
Page 3: Schedule K (Pass‑through items to shareholders)
Schedule K is a summary of the total amounts for all shareholders. These totals will match the amounts on your individual Schedule K-1 (see K-1 section).
- Pass-through mechanics: S Corps are "pass-through" entities, meaning the business itself doesn't usually pay income tax. Instead, income and deductions pass through to you, the shareholder.
- Distributions: This section reports the money you've taken out of the business. In most cases, these are tax-free to the extent you have "basis" (investment) in the business.
Page 4: Schedule L (The Balance Sheet)
A snapshot of what your business owns and owes at year-end. Schedule L mirrors the Balance Sheet in your Collective dashboard.:
- Assets: Cash, equipment, and other items of value.
- Liabilities: Loans or credit card balances.
- Equity: What's left over; changes based on profits, distributions, and contributions.
Page 5: Schedule M-2
Shows how your equity changed during the year, i.e. what came in (profits, contributions) vs. what went out (distributions to you). Use this to reconcile how much you took out vs. how much stayed in the business. This will accumulate year over year but your beginning balance will never go below zero.
Schedule K-1: Your Share of S Corp Profit
This is the bridge between your business and personal taxes. It shows your share of the S Corp's income (100% for single-owner S Corps). You will use the information from this form to complete your personal income tax filing (Form 1040).
Disclaimer: The information contained in this document is provided for informational purposes only and should not be construed as legal, financial, or tax advice.