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A Comprehensive Guide on Amending Your S Corporation Tax Return Form 1120-S

S-Corp Tax Return form 1120s

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Amending your S Corporation tax return form (1120-S) can seem like a daunting task. However, with the correct approach and understanding, it becomes a manageable task. This guide will walk you through the reasons for amending a Form 1120-S, the process of amendment, and the implications of not doing so correctly.


Introduction

An S Corporation (S Corp) is a unique entity that combines the limited liability advantages of a corporation with the tax benefits of a partnership. However, like all business entities, it is subject to various tax obligations, including filing a Form 1120-S tax return. Mistakes can occur during this process, and when they do, it's crucial to correct them by filing an amended return.

What is an Amended 1120-S?

An amended 1120-S is essentially a corrected version of the original Form 1120-S. It allows you to rectify errors, incorporate new information, or make adjustments to an already filed Form 1120-S. It's essential to note that S Corps do not have a specific form for amendments, like Form 1120-X for C corporations. Instead, they must refile the entire Form 1120-S with the corrected information.

Why Amend a Form 1120-S?

There are two primary reasons why you might need to amend your filed Form 1120-S:

  1. Correction of Errors: If you discover an error in your filed Form 1120-S that impacts your business income, deductions, or tax credits, you'll need to file an amended return. However, not all mistakes necessitate an amendment. For instance, if the IRS spots a mathematical error, they will correct it and inform you of any additional tax owed.

  2. New Information: If you receive new information after filing your original return that could affect your S Corp tax return, you will need to file an amended return. For example, if you realize you forgot to claim a tax credit that could significantly lower your tax liability, you should amend your return.

How to Prepare an Amended Form 1120-S

Amending a Form 1120-S involves a meticulous process. Following these steps can help ensure you complete the process correctly:

Step 1: Create a New Form 1120-S

The first step involves filing a fresh copy of Form 1120-S with the corrected information. It's recommended to keep a copy of every tax return you file, so you can refer to the initial return and correct the errors.

Step 2: Prepare New Schedules K-1

As your business income changes, you may need to file new Schedules K-1 for each shareholder. S Corp owners receive a Form W-2 every January and a Schedule K-1, which reports the shareholder's portion of business profits.

Step 3: File an Amended Personal Tax Return

Since S Corp income taxes are paid through your personal tax return, any change in your Schedule K-1 or Form W-2 earnings will require you to amend your individual tax return Form 1040.

Step 4: Make Additional Tax Payment

If your amended return results in an increased tax liability, you should make an additional tax payment with your 1040-X filing.

Step 5: Amend State Tax Returns

Lastly, depending on the state in which the S Corp operates, you may also need to amend your state tax returns.


Implications of Not Correctly Amending Form 1120-S


Failing to correctly amend your Form 1120-S can have serious implications. These could include penalties and interest, or even an IRS audit if the mistake significantly affects your tax liability.


Conclusion


While amending a Form 1120-S can seem overwhelming, it's a crucial step to ensure tax compliance. By understanding the reasons for amending a Form 1120-S, following the correct amendment process, and being aware of the implications of not amending correctly, S Corps can navigate this process effectively. Always consult with a tax professional if you have any doubts or concerns.

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