01
Pre-filing reconciliation
Books must tie to bank statements, credit-card statements, and payroll registers. Balance-sheet accounts (M-1/M-2 for corporations, Schedule L for all) must reconcile before the return is opened.
Preparation & Bookkeeping
Business Tax Preparation Procedure
A correctly prepared business return starts long before Form 1120/1120-S/1065 opens. It starts with reconciled books, tied-out schedules, and reasonable-compensation documentation.
Checklist Summary
An at-a-glance view of every step covered in this guide.
- Step 1: Reconcile books through year-end.
- Step 2: Prepare depreciation schedules and fixed-asset reconciliations.
- Step 3: Document reasonable compensation (S-corps) or guaranteed payments (LLCs).
- Step 4: Draft the return; review book-to-tax (M-1) adjustments.
- Step 5: File and deliver K-1s.
Key Forms & Notices
- Form 1120
- Form 1120-S
- Form 1065
- Schedule K-1
Statutes & Authority
- IRC §1362 (S-corp election)
- IRC §707 (partnership transactions)
Timeline Summary
Jump to any stage
02
Entity-specific considerations
1120: reasonable comp for owner-employees, accumulated earnings tax. 1120-S: reasonable comp is a §1366 audit target; basis worksheets for shareholders. 1065: guaranteed payments, §754 elections, and PTE elections in some states.
03
K-1 delivery
Shareholders and partners need K-1s in time for their personal returns. Extensions cascade — an entity extension does not extend individual deadlines.
How the Procedure Works
- 1Reconcile books through year-end.
- 2Prepare depreciation schedules and fixed-asset reconciliations.
- 3Document reasonable compensation (S-corps) or guaranteed payments (LLCs).
- 4Draft the return; review book-to-tax (M-1) adjustments.
- 5File and deliver K-1s.
Frequently Asked Questions
When are business returns due?
Partnerships and S-corps: March 15 (September 15 extended). C-corps: April 15 (October 15 extended). Fiscal-year filers: 15th day of the 3rd/4th month after year-end.
What is 'reasonable compensation' for an S-corp owner?
Wages an unrelated party would earn performing the same services, benchmarked against BLS data, comparability studies, and the owner's actual role. Understating W-2 comp to reduce payroll tax is a top S-corp audit issue.
Do I need to file a business return if there was no activity?
Yes. Active LLCs, S-corps, and partnerships must file a return even at zero revenue. Failure-to-file penalties on Form 1120-S and 1065 accrue at $245/month per shareholder or partner.
Can I switch from LLC to S-corp mid-year?
Yes with a timely Form 2553 election (within 2 months and 15 days of the effective date). Late elections are possible under Rev. Proc. 2013-30 if reasonable cause is documented.
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