How to File Form 1120 in 2025 Without the Headache: A Step-by-Step Guide

In 2024 alone, the IRS handed out millions in penalties to C corporations that missed deadlines, filed incomplete Form 1120s, or misunderstood the basics of corporate tax filing.

Founders, here’s the truth: even if your C corporation made zero profit last year, skipping or botching your Form 1120 filing could trigger IRS notices, fines, or loss of good standing.

That’s where this guide comes in. Whether you’re a new founder or a global entrepreneur running a US business remotely, we’ll walk you through exactly how to file Form 1120 in 2025, step by step.

Who Should Read This?

• US C-corp founders, even if it’s a single-person SaaS company or holding company

• Global founders managing their business from outside the US

• If you’re unsure if you need to file Form 1120, or what happens if you don’t

• If you want to avoid penalties and IRS scrutiny and claim deductions

Throughout this guide, you’ll also see how doola Tax Filing helps businesses stay compliant, penalty-free, and stress-free with expert-backed support built for both US and global founders.

What Is Form 1120? Who Needs to File It?

Form 1120 (issued by the IRS) is the US Corporation Income Tax Return, used by C corporations to report income, deductions, credits, and tax due to the IRS.

Who Must File Form 1120?

Converted your LLC to a C Corp recently? You’ll start filing Form 1120 from that tax year onward.

Even Dormant Corporations Must File

If your C corp has zero revenue, no employees, and no activity, Form 1120 is still mandatory each year. Failing to do so can lead to penalties and unexpected audits.

When Is Form 1120 Due in 2025?

What If You Use a Fiscal Year?

For corporations using a non-calendar fiscal year, Form 1120 must be filed by the 15th day of the fourth month after the close of your fiscal year.

Example: If your fiscal year ends June 30, 2025, your Form 1120 is due by October 15, 2025.

🕐 Need More Time? File an Extension

You can file Form 7004 to get an automatic 6-month extension to submit Form 1120. But don’t get too comfortable; this extension only applies to filing, not paying.

Important: Estimated taxes are due by April 15, 2025, even if you file for an extension.

Penalties to Watch Out For

Pro Tip: File early to avoid last-minute errors, IRS system delays, or missing documents.

Checklist: What You’ll Need Before Filing Form 1120

Before you get right into filing, save yourself time (and stress) by gathering all the essentials:

• Employer Identification Number (EIN): Your unique federal tax ID, required to identify your C corp on Form 1120.

• Profit and Loss (P&L) Statement: A summary of your business income and expenses for the year to calculate taxable income accurately.

• Balance Sheet: A detailed report of your corporation’s assets, liabilities, and shareholders’ equity, required for Schedule L.

• Prior year’s Form 1120 (if applicable): Helps with consistency checks and carryforward items like net operating losses (NOLs).

• Receipts, invoices for business expenses: Supporting documentation to back up deductions and reduce the risk of IRS scrutiny.

• Payroll reports and officer compensation details: Required to report salaries, bonuses, and benefits paid to employees and corporate officers.

• Record of Estimated Tax Payments: Any quarterly payments made to the IRS during the year to avoid underpayment penalties.

• Bank statements: For verifying financial activity and reconciling income and expenses.

• Depreciation schedules: Itemized breakdown of depreciable assets to report deductions.

• Any IRS correspondence: Letters, notices, or previous communications from the IRS that may affect your filing.

Step-by-Step Guidelines: How to File Form 1120 in 2025

In this section, we’ll walk you through each core part of Form 1120, explaining not just what to fill out, but how, why, and what to double-check.

Part I: Reporting Your Income – What You Made (& Returned)

This section captures your total income for the year. Here’s how to get it right:

1. Gross Receipts or Sales: This is your business’s total income before any expenses. If you’re running an e-commerce site, this includes every dollar collected from customers, even if some products were returned or refunded.

Example: If your online store brought in $200,000 in product sales, that’s your gross receipts.

2. Returns and Allowances: These are the refunds, discounts, or allowances you gave to customers. They reduce your gross receipts to get your net sales.

Example: If you refunded $10,000 worth of products due to defects, and issued $2,000 in promotional discounts, your returns/allowances total $12,000.

3. Cost of Goods Sold (COGS): This is what it cost you to make or acquire what you sold. Think raw materials, packaging, and direct labor.

Example:  If you started the year with $20,000 in inventory, purchased $50,000 more, and ended with $15,000 in inventory:

COGS = ($20,000 + $50,000 – $15,000) = $55,000.

4. Other Income: This is the catch-all for anything that doesn’t fit above, like interest income, rental income, or gains from selling assets.

doola Tip: Match this line to your bank deposits or accounting software. Inconsistencies here often trigger IRS questions.

Part II: Deductions – What You Spent to Run the Business

Here’s where you reduce your taxable income, legally, by claiming legitimate business expenses.

But it’s also where the IRS looks closest, so document everything.

1. Salaries and Wages: This includes what you paid employees, excluding officer compensation (that goes on a separate line).

Example: If you’ve paid your part-time assistant $30,000, that’s fully deductible.

2. Rent and Lease Expenses: Office rent, coworking spaces, or warehouse leases all qualify.

Example: Paying $2,000/month for an office lease = $24,000 deductible annually.

3. Advertising and Marketing: This includes digital ads, influencer payments, print campaigns, and even website costs.

Example: Running $5,000 in Facebook ads and paying a $2,000 agency fee = $7,000 deduction.

4. Employee Benefits: Health insurance, retirement contributions, educational assistance programs all count. These can also help you attract and retain top talent, that’s a double win.

5. Depreciation: This is how you expense big-ticket items over time (e.g., laptops, vehicles, or machinery).

Example: If you bought a $2,500 computer for business use, you may deduct it over several years using the IRS MACRS depreciation method, or claim it all in one year using Section 179.

6. Taxes and Licenses: Business licenses, state business taxes, payroll taxes (but not federal income tax) are all deductible.

7. Interest Paid: If your business took out loans or used a line of credit, interest paid is deductible. So if you paid $1,200 in interest on a business credit card, that’s deductible.

Part III: Calculating Tax & Reporting Payments – What You Owe (& What’s Already Covered)

Now it’s time to compute your total tax liability and subtract any amounts you’ve already paid through estimated taxes.

1. Start with Taxable Income: Your taxable income = Total income (from Part I) minus total deductions (from Part II).

Example: Gross receipts: $200,000, COGS: $55,000, Deductions: $80,000

Taxable income = $200,000 – $55,000 – $80,000 = $65,000

2. Apply the Corporate Tax Rate: C corporations are taxed at a flat 21% federal rate.

Calculation: $65,000 × 21% = $13,650 in federal corporate tax.

3. Subtract Credits: You may be eligible for credits like the Foreign Tax Credit, General Business Credit, or R&D Credit.

Example: Claimed $2,000 in R&D tax credits? New tax owed = $13,650 – $2,000 = $11,650

4. Report Estimated Payments: If you made quarterly estimated tax payments throughout the year, deduct them here.

Example: You already paid $10,000 in estimated tax. Balance due = $11,650 – $10,000 = $1,650

5. Overpayment = Refund: If you overpaid, you can apply it to next year or request a refund.

Schedules You’ll Likely Need With Form 1120

Form 1120 comes with several schedules that help the IRS understand your business activity in detail, and skipping or misreporting them could lead to costly errors or audit triggers. 

Let’s break them down, one by one, so you know what’s required, and why it matters.

1. Schedule C: Dividends, Interest, Royalties, & Foreign Income

Schedule C (not to be confused with the sole proprietor form of the same name) captures specific types of income outside your regular business operations.

So, if your C corp earned interest from a savings account, received dividends from investments, or earned royalties from licensing intellectual property, it goes here.

Example: Let’s say your tech startup invested some cash reserves into a dividend-yielding ETF, and you received $1,200 in dividends. You also earned $3,000 from licensing out software IP, and another $800 in interest from a business bank account.

Your Schedule C breakdown would look like:

These amounts get rolled into your total income, so accuracy here directly impacts your taxable earnings.

2. Schedule J: Tax Computation, Credits, & Net Tax Liability

Schedule J takes your taxable income and walks through the step-by-step computation of your corporate tax owed, factoring in any tax credits and payments you’ve already made.

Example: Suppose your corporation’s taxable income (after deductions) is $85,000. The federal corporate tax rate for 2025 is 21%, so your base tax is: $85,000 × 21% = $17,850

Now let’s say you qualify for a $2,000 Research & Development (R&D) credit, and you’ve already paid $12,000 in estimated tax payments during the year.

Schedule J would reflect:

• Tax liability: $17,850

• Credits: -$2,000

• Payments: -$12,000

• Net tax due: $3,850

Schedule J ensures the IRS sees a transparent, clean summary of how much you owe, or how much you’ve overpaid.

3. Schedule K: Business Identity, Ownership, & Activity Details

Schedule K outlines the “who” and “what” of your C corporation. 

This includes your business activity code, accounting method (cash or accrual), percentage of US ownership, and whether your return includes any foreign transactions.

Example: Say you run a digital design studio, operate on an accrual basis, and 100% of your shareholders are non-US persons. All of this gets documented here. 

This is the section where the IRS gathers context about your structure, and where international founders must ensure that ownership data aligns with US tax obligations, such as FATCA compliance.

4. Schedule L: Balance Sheet Snapshot (If Asset/Receipts > $250,000)

Schedule L gives the IRS a financial snapshot of your corporation’s assets, liabilities, and equity at both the beginning and end of the tax year. It’s required if your total assets or gross receipts exceed $250,000, which is common even for small, growing startups.

Example: Let’s say you began the year with $80,000 in cash, $10,000 in accounts receivable, and $20,000 in equipment. By year-end, you had $120,000 in cash, $25,000 in receivables, and bought an additional $15,000 in hardware.

Your Schedule L would reflect:

• Beginning assets: $110,000

• Ending assets: $160,000

• Liabilities might include credit card debt, unpaid salaries, or loans

• Equity is the difference between your assets and liabilities

This schedule tells the IRS if your claimed profit matches the movement in your balance sheet, and helps flag inconsistencies.

5. Schedule M-1: Reconciling Book Income with Taxable Income

Schedule M-1 explains why your financial books and your tax return show different numbers. It’s especially important for companies that use accrual accounting, or for those that deduct items for tax purposes that aren’t on the books (or vice versa).

Example: Let’s say your book income was $90,000, but you took a $10,000 tax deduction for depreciation that doesn’t show up in your income statement. You also had $2,000 in meals and entertainment expenses that were only 50% deductible.

Schedule M-1 would reconcile the following:

• Subtract $10,000 for depreciation

• Add back $1,000 for non-deductible meals

• Resulting in a taxable income of: $90,000 – $10,000 + $1,000 = $81,000

This section is critical to prevent IRS confusion (and inquiries) when your books and tax return don’t line up.

6. Schedule M-2: Tracking Retained Earnings

Schedule M-2 shows how your corporation’s retained earnings changed over the year, basically, what profit was kept in the business versus distributed out. It also records adjustments that affected your retained earnings without impacting your net income, like prior year corrections.

📌 Example Scenario:

• Retained earnings at start of year: $25,000

• Net income for the year: $50,000

• Dividends paid out: $15,000

• Correction from prior year (underreported income): +$2,000

End-of-year retained earnings: $25,000 + $50,000 – $15,000 + $2,000 = $62,000

This schedule becomes crucial if you’re audited, applying for loans, or onboarding investors who want to understand how much profit you’re retaining to grow the business.

Common Tricky Sections That Trigger IRS Scrutiny

Certain parts of Form 1120 are tricky, and mishandling them can invite IRS attention or delay processing.

Let’s cover the common danger zones and how to handle them with confidence.

1. High Expenses with $0 Revenue

Imagine filing a return that shows $100,000 in operating expenses… but no income at all.

That might be completely legitimate in your startup’s early stage, especially during product development or pre-revenue fundraising. 

But to the IRS, this kind of mismatch often raises suspicion.

Now let’s say your Form 1120 includes:

• $45,000 in salaries

• $30,000 in R&D software and tools

• $15,000 in rent

• $10,000 in marketing

• Total expenses = $100,000

• Gross receipts = $0

This filing tells the IRS: “We spent big, but made nothing.” Unless you’re filing a final return for a dissolved company or are clearly a pre-revenue startup, you’ll want to back this up with documentation. 

Always include strong evidence like:

• Investor funding documentation

• A pitch deck showing fundraising timelines

• A development roadmap indicating your go-to-market is still pending

• A clear explanation in your records or statement that this is a ramp-up year

2. Depreciation: Use the Correct IRS Method (Or Risk a Correction)

Depreciation is often misunderstood, but it’s critical to get it right, especially since it affects both your deductions and your asset reporting on Schedule L.

Let’s say you bought office equipment worth $10,000 in January. If you incorrectly claim the full $10,000 as an expense in Year 1 instead of spreading it over 5 years as required, the IRS could:

• Disallow the deduction

• Apply penalties or interest

• Flag your return for a deeper audit

Under MACRS (Modified Accelerated Cost Recovery System), which most businesses must use, you’d typically depreciate that $10,000 over 5 years.

So, your allowable depreciation might look something like:

Year 1: $2,000 (plus bonus depreciation, if eligible)

Year 2: $3,200

Year 3: $1,920

It’s all about aligning with the IRS-published depreciation tables and applying the correct convention (half-year, mid-quarter, or mid-month depending on the asset and acquisition date). 

Services like doola Tax Filing or a tax professional can automate this, but it’s worth checking that your numbers tie out.

3. Officer Compensation: Be Reasonable and Ready to Justify

Yet another potential warning trigger is Line 12 on Form 1120: Officer Compensation.

If your company’s officer (even if it’s just you, the founder) is paid an unusually high or low salary compared to the company’s size, industry, and profitability, that could be a problem. The IRS requires compensation to be “reasonable”, not arbitrary.

Let’s say your company earned $500,000 in net income. If you paid yourself $400,000 and took only $100,000 in retained earnings, the IRS may ask:

• Was that salary aligned with industry norms?

• Was part of it really a disguised dividend?

On the flip side, underpaying yourself to avoid payroll taxes can backfire too.

If you took only $10,000 in salary and the rest in distributions, the IRS could recharacterize some of those distributions as unpaid wages and hit you with back taxes and penalties.

To be on the safe side, you need to maintain:

• A board resolution approving officer salaries

• Comparable salary data from industry reports (e.g., Payscale, Glassdoor, BLS)

• A written breakdown of the officer’s role, time commitment, and responsibilities

Common Mistakes to Avoid When Filing Form 1120

We’ll now walk you through the most common mistakes businesses make when filing Form 1120, what they can cost you, and how to stay ahead of them.

Made a Mistake? Fix It Fast.

If you catch an error after filing, don’t panic. You can still amend your return using Form 1120X.

But to avoid future headaches, let doola’s bookkeeping and tax experts take the wheel. We’ll ensure your Form 1120 is accurate, compliant, and audit-ready from day one.

Sign up with doola today and file your next return with total confidence.

Should You DIY or Call In a Pro?

If you’re unsure whether to tackle the form solo or tag in a tax professional, here’s a smart way to assess it. Use it as your built-in filter for when it’s safe to DIY… and when to call in backup.

When DIY Might Be Fine

• You’ve just started a new C-Corp with <$10K revenue

• You have no employees, payroll, or contractors to report

• There were no dividends, distributions, or asset sales during the year

• You’re filing in a single state with no international owners or R&D claims

When to Hire a Pro

• You have international shareholders (complex reporting)

• You operate in multiple US states (each with different rules)

• You’ve claimed R&D tax credits or made significant capital investments

• You’ve received IRS notices or audit triggers

• You need help with depreciation, carrybacks, or equity reporting

Why doola: File Form 1120 Without the Stress

With doola Tax Filing, you’re not just filing a form, you’re filing it right. Our expert tax team simplifies compliance and keeps your business aligned with IRS and state requirements.

What You Get with doola Tax Filing:

Federal + State Return Filing: From Form 1120 to state corporate returns, we handle it all in one go, so nothing falls through the cracks, even if you’re operating across multiple states.

Real Human Support (Not Just Bots): No endless chatbot loops. You’ll work with real tax professionals who know your business and can answer real questions with expert precision.

Seamless IRS E-Filing + Smart Reminders: We submit directly to the IRS through secure e-file channels and send proactive deadline reminders, so you never fall behind.

Flat, Transparent Pricing: No hidden fees, no confusing invoices. Just one clear price up front, so you can budget smartly, unlike some local CPAs who charge by the hour.

Purpose-Built for International Founders: Our onboarding, support, and compliance systems are designed to meet the needs of global founders building US C-corps from overseas.

Fast & Seamless Onboarding: We get you set up, compliant, and ready to file, fast. Perfect for founders who move quickly and don’t have time for paperwork holdups.

How Does doola Tax Filing Stack Up?

Join 10,000+ global founders who trust doola to keep their C corps compliant, without losing sleep or falling behind on IRS deadlines.

Sign up with doola today and get your 1120 filed the right way, with no surprises.

FAQs

What’s the difference between Form 1120 and Form 1120-S?

Form 1120 is for C corporations. Form 1120-S is for S corporations that made the S election.

What if my C corp had no income?

You must still file Form 1120 annually, or risk IRS penalties, even if your revenue was $0.

Can I file Form 1120 if I’m not a U.S. resident?

Yes. Non-resident owners of US C corps are required to file if the business exists and is active.

What happens if I file Form 1120 late?

The IRS will charge penalties + interest, even if no tax is owed. File early or request an extension via Form 7004.

How do I know if I’m a C corp or S corp?

You’re a C corp by default unless you’ve filed Form 2553 to elect S corp status.

Does doola file state corporate taxes too?

Yes, doola supports state filings in addition to the federal Form 1120.

How much does it cost to file Form 1120 with doola?

doola offers transparent flat pricing, no hidden fees. Check out our services and pricing.