Form 1120-S for US Expats: Tax Returns for S Corp Shareholders

Running your own business as an expat is surely fulfilling, but when tax season approaches it can turn you into a bundle of nerves. Especially if you have a special business structure like an S corporation.

An S corporation is basically a small business that gets some sweet tax perks. It’s like a regular corporation, but instead of the corporation itself getting taxed on profits, those profits (and any losses!) get passed through directly to the shareholders.

Now, even though you’re an expat running your S corporation abroad, the IRS still needs to know what you’ve been up to. Form 1120-S is your ticket to reporting your S corporation’s income — and below, we’ll break down who needs to file it and how to fill it out.

What is Form 1120-S?

Simply put, Form 1120-S is considered your company’s tax return — its purpose is for you to report your share of your business’s annual distributions.

The form reports all financial activity to the IRS so that you and other shareholders can use the information on this form to report your shares of the S corporation’s income on your personal tax returns. This avoids double taxation — tax on both the corporation and the shareholders for the same income.

Form 1120-S allows S corporations and their shareholders to enjoy the benefits of the structure, such as flexible ownership transfers and simpler accounting methods, while ensuring the IRS is informed about the corporation’s financial activities.

Filing Form 1120-S is important because it:

• Helps you stay compliant with IRS regulations
• Clarifies your business income and shareholder ownership
• Facilitates personal income tax preparation
• Ensures you avoid the “failure-to-file” penalty (which can reach up to 25% of the taxes you owe)

The deadline for filing Form 1120-S is March 15, a month earlier than most of your other personal tax forms. You can file Form 7004 to request an automatic six-month filing extension to September 15th if you can’t meet the deadline.

Who needs to file Form 1120-S?

If you’re a US citizen or green card holder, and a shareholder in an S corporation, then you’re responsible for filing Form 1120-S, even if the corporation operates overseas.

Here’s the thing to remember about S corporations: as mentioned above, they use pass-through taxation. Essentially, the S corporation itself doesn’t pay taxes on its profits. Instead, those profits (and any losses, for that matter) get passed through directly to the shareholders – you.

This means that you and your fellow shareholders report the S corporation’s income on your own personal tax returns. Form 1120-S is how you tell the IRS all about that income for the corporation.

What information do I need to collect before filing?

​​Before you dive into filling out Form 1120-S, it’s best to gather all the necessary information to make the process smooth:

• Business information: Dust off your business bank statements, income statements, and expense records for the year. You’ll need this information to accurately report your S corporation’s income and expenses on the form:
  • Your business name and address
  • Incorporation date
  • The employer identification number (EIN)
  • S corp election effective date (from Form 2553)
  • Financial statements
  • Evidence of gross income (sales, capital gains, royalties)
  • Applicable deductions
  • Tax credits
  • Estimated quarterly tax payments (if you’ve made them)
• Shareholder information: A complete list of your shareholders and their ownership percentages is necessary, too. This helps the IRS understand how to distribute the S corporation’s profits and losses among the shareholders.

How to fill out Form 1120-S

Form 1120-S is a complex tax document and the data you must provide is very detailed. There are three main sections of the form:

• Income: Includes lines 1-6 and information such as net gain, gross profit, gross receipts and sales, etc.
• Deductions: Includes lines 7-21 and information about shareholder salaries, wages, employee benefits, pensions, taxes, etc.
• Tax and payments: Include lines 22-27 and information about excess net passive income, general business credit, estimated tax penalties, etc.

The rest of the Form 1120-S consists of five schedules:

• Schedule B: Other Information
• Schedule K: Shareholders’ Pro Rata Share Items
• Schedule L: Balance Sheet per Books
• Schedule M-1: Reconciliation of Income (Loss) per Books with Income (Loss) per Return
• Schedule M-2: Analysis of Accumulated Adjustments Account, Shareholders’ Undistributed Taxable Income Previously Taxed, Accumulated Earnings and Profits, and Other Adjustments Account

While this may seem like a lot, luckily, the official instructions for completing this form are available on the IRS website. This is the most reliable and up-to-date resource. The IRS provides detailed instructions for each section of the form, explaining what information goes where and offering helpful tips. You can download the form here and see the instructions here. The most recent version of the Form 1120-S was published in 2023.

Additional considerations for expats when filing Form 1120-S

Form 1120-S is the key to reporting your S corporation’s income. But, there are some additional considerations for US citizens living abroad:

• Tax benefits for expats: The Foreign Earned Income Exclusion (FEIE) allows you to exclude a certain amount of your earned income from US taxes if you meet certain residency requirements.
• Foreign Tax Credits: Did you already pay taxes on your S corporation’s income in another country? The Foreign Tax Credit helps prevent double taxation by allowing you to credit those foreign taxes paid against your US tax liability.

Form 5472: For some S Corporations only

If your S corporation has 25% or more foreign ownership, you might also need to file Form 5472. This form gathers information about your corporation’s foreign activities and shareholders. Don’t worry about this form unless it applies to your specific situation.