Each year thousands of business owners who operate through a corporation are required to file Form 1120 with the Internal Revenue Service. Much like a personal income tax return, Form 1120 requires the business owner to disclose all income earned by the corporation over the past tax year. Form 1120 also requires the corporation to list expenses, losses, dividends made and the cost of labor and goods sold.
Schedule E of Form 1120 requires the corporation to disclose compensation paid to its officers in certain instances. Know when you must complete Schedule E and how to fill it out.
Determine Whether Schedule E is Needed
Determine whether you must complete Schedule E of Form 1120. A corporation must provide the information asked for in Schedule E when the gross receipts from sales plus all dividends, interest, gross rents, gross royalties, capital gain net income, net gains and other income in the last tax year total $500,000 or more.
List Each Officer's Details
List the name and social security number of each officer of the corporation in columns (a) through (b) of Form 1120 Schedule E. Officer positions include president or CEO, vice president, treasurer or chief financial officer and secretary.
List Time Spent by Each Officer
List the percentage of time each officer spent working on behalf of the corporation in the past year and the percentage of preferred and common corporate stock each officer owns in columns (c) through (e).
The percentage of time an officer worked on behalf of the corporation should be considered in relation to other jobs or duties the officer performed for other companies. For example, if half of each week was spent working at another company, then the officer worked on behalf of the reporting corporation 50 percent of the time.
Determine Each Officer's Compensation
Add up the total compensation of each officer. For purposes of Form 1120, the IRS defines compensation as any value provided to the officer in exchange for his service to the corporation except income from certain employee trusts, annuity plans or pensions and benefits that are allowed to be excluded from income under the Internal Revenue Code.
Add up the Total Compensation
Add up the total compensation paid to all of the corporation’s officers and enter that amount on line 2 of Schedule E. Enter on line 3 the total compensation claimed on Schedule A and elsewhere on Form 1120. Subtract line 3 from line 2. Enter the result on line 4 of Schedule E and on line 12 on the first page of Form 1120.
The IRS provides a set of instructions to assist you in filing Form 1120 and any related schedules. These can be found on the IRS website, www.irs.gov.
- The IRS provides a set of instructions to assist you in filing Form 1120, Form 1125, Schedule E and any related schedules.
Michael Scarn is a legal, automotive, fitness, business and aviation writer. He has been a professional writer since 2006. Scarn holds a Bachelor of Arts degree in philosophy from Brigham Young University as well as a Master of Business Administration and a Juris Doctorate—both from the University of Nevada at Las Vegas.