The Illinois 1120 tax form refers to corporate income and replacement taxes. Essentially, all businesses operating in the state of Illinois must fill out an 1120 and pay taxes based on their income. Though the form is in many ways boilerplate, it can be difficult to navigate if you don’t have experience with legal or tax documents. Fortunately, this guide will help you avoid any massive headaches when tax time rolls around. Below, we’ll explain everything you need to know about IL 1120 tax forms, including if your business has to file, how to calculate your income allocable to Illinois, and everything in between:
Do I Need to Fill out an 1120?
If you own a corporation in the state of Illinois, you must file an 1120 regardless of whether or not your business made a net profit. The good news is, you won’t be taxed if your business suffered an overall loss. Nevertheless, you still must complete the form and submit it before the deadline in order to avoid late fees or penalties. If you claim a refund based on business losses, or if you requested a credit carry forward, you must file the loss return within three years to receive a refund. Otherwise, you’ll lose your right to claim that money.
When Do I Have to File?
The short answer to this question is before April 15. Depending on when you founded your business, though, you may have to file before March 15. Cooperatives must file before September 15. (For a quick rundown of the different types of business legal structures, click here.)
When you file doesn’t necessarily indicate when you have to pay taxes, though. In fact, Illinois requires businesses that can reasonably expect to generate an income or tax liability greater than $400 to pay estimated tax fees in April, June, September, and December. These quarterly estimated taxes can be difficult to calculate if you’re not keeping a close eye on your books, so it makes sense to partner up with a legal or accounting professional to help you keep tabs on this task. Making a late payment in this regard could incur a three-percent rate penalty.
Should you need to, you can request for an extension to file your taxes.
What Do I Need to File an 1120 Tax Form?
In brief, you will need access to personal and professional information pertaining to your business. However, the most important thing you need to complete the form are your accounts. Without detailed bookkeeping, completing an 1120 tax form is next to impossible. So take some time to talk to your business partners and get your accounts in order before you attempt to calculate any figures related to your company’s performance.
Completing an 1120 Tax Form
Assuming that you have kept accurate track of your corporation’s funds, income, and losses, the most challenging aspect of completing an 1120 tax form is simply deciphering what the form is asking of you. In this section, we’ll breakdown the IL-1120 and explain in layman’s terms how to fill out the form correctly.
The first part of the 1120 relates to general information about your business. To complete this section, you’ll need to designate the following:
- Corporation Name.
- If this a first or final return for the year.
- If you have any of several potential add-ons to submit such as a Schedule M, form 4562, etc.
- Federal Employer Identification No. (FEIN)
- North American Industry Classification System (NAICS) Code.
- Corporate Charter Number.
- Method of accounting (cash or otherwise).
The good news here is that this first page should be fairly straightforward. And you don’t even have to do any math! (That will change soon enough.)
The next few sections are dedicated to calculating different varieties of business income, including:
- Base Income
- Income Allocable to Illinois
- Net Income
- Replacement Tax Credits
Regular income, in this instance, is simply the number produced by subtracting all expenses from all revenues.
Base income, conversely, is a business’s income, subtracted by a number of potential deductions. Certain businesses may be eligible for specific deductions such as the Illinois Special Depreciation subtraction, or for contributions to job-training projects. If your business qualifies for one (or more) of these stipulations, you may subtract those figures from your income to arrive at your “base income.”
Add up all the interests and other deductions your business has accrued and subtract that total from your income. That leaves you with base income.
Income Allocable to Illinois
To determine tax income allocable to Illinois, one must list total business income (or loss), total sales made everywhere, and total sales made inside of Illinois. Next, divide total sales made in Illinois by total sales made everywhere. This will provide you with an apportionment factor. Lastly, multiply the apportionment factor with your business income or loss. The resultant number is your base income or loss allocable to Illinois. Businesses that operate only in Illinois don’t have to concern themselves with these figures, but rather can list their base income as allocable to Illinois.
Net Income & Tax Credits
In order to arrive at net income, a business owner must subtract all possible deductions from their base income. In addition, business owners will also have to tabulate any available tax credits. Again, there are many possibilities in this regard, and unless you’re certain about your eligibility, you should consult a professional for assistance. Lastly, to complete the form, one must multiply net income by the corporate tax rate in Illinois (7%). This is your company’s income tax. From there, you will use this number to fill out either your refund or your balance due.
What Happens if I Make a Mistake?
Should you make a mistake on an 1120 tax form after submission, you can correct it by using the 1120-X form. Note, it’s important that you calculate all of your figures correctly. In some circumstances, businesses that underpay corporate taxes could have to pay a penalty to the IRS. Fortunately, the IRS may waive the penalty if the underpayment is less than $1,000 or if you’ve paid 90% of your taxes from the current year.
Some businesses also encounter difficulty making estimated payments. Specifically, businesses that experience seasonal spikes may struggle to arrive at accurate quarterly predictions. Such businesses should consult with a tax professional to set up “unequal” or staggered payments throughout the year.
Though it’s possible to complete an 1120 tax form on your own, it’s nevertheless recommended that you seek assistance from legal advisors. Not only is the form complicated and comprehensive, but there are a myriad of exemptions and special circumstances that may or may not apply to your business. Rather than spending days combing through the fine print, consider reaching out to a business law firm. At Sivia Law, we’ll help you avoid the headache and stress associated with tax season. Contact us today to get started!