What it means
Form 1120 is the federal income tax return for a C corporation, the legal form most venture-backed startups use. A C corporation pays income tax itself, separately from its shareholders, so it files its own return reporting income, deductions and tax owed.
Every domestic C corporation files every year it exists, including years with no revenue and years with a loss. For a calendar-year company it's due April 15. A company with a June 30 year end has been due on the 15th day of the third month instead, an exception that ends for tax years beginning after 2025.
The return starts from the year's closed books and then adjusts for places where tax rules differ from GAAP, such as depreciation. Those book-to-tax differences are reconciled on schedules inside the return. The adjusted figure is taxable income, taxed at a flat 21% federal rate.
A company expecting to owe tax pays quarterly estimates during the year. A loss isn't paid out by the IRS. It becomes a net operating loss that carries forward with no expiry and can offset up to 80% of taxable income in a later profitable year. Form 7004 gives six more months to file, but tax owed is still due on the original date.
Acme's federal taxable income for the year is $100,000, so its tax is $21,000. It paid $15,000 in quarterly estimates, held on the balance sheet as prepaid income taxes. At year end it records $21,000 of income tax expense, uses up the $15,000 prepaid and books the remaining $6,000 as income taxes payable.
If the return needs more time, Acme files Form 7004 and still pays the $6,000 by April 15. The return itself then goes in by October 15. Paying clears the liability; filing doesn't change the expense already booked.
State income tax returns are filed separately. Delaware franchise tax isn't an income tax and runs on its own March 1 calendar, and 1099-NEC forms go out in January. All three draw on the same closed year.
Two lines matter to most startups. Domestic research costs can again be deducted in the year they're paid, under Section 174A for tax years beginning after 2024. And a young company with under $5 million of gross receipts can elect, on a timely filed return, to apply up to $500,000 a year of research credit against its payroll taxes.
Why it matters. It's required even in a loss year, and those losses can offset future taxable income. Your preparer needs a closed year to start from.
Try it with your numbers
Change any number. The working below updates as you type.
NOL used = lesser of NOL and 80% × Taxable income · Tax = 21% × (Taxable income − NOL used)Federal income tax
$21,000.00
How it’s worked out
- 180% limit80% × $100,000.00$80,000.00
- 2NOL usedLesser of $0.00 and $80,000.00$0.00
- 3Taxable income after NOL$100,000.00 − $0.00$100,000.00
- 4Tax at 21%21% × $100,000.00$21,000.00
- 5Balance due$21,000.00 − $15,000.00$6,000.00
- 6NOL left to carry forward$0.00 − $0.00$0.00
Federal only. State tax, credits and losses from before 2018 (which aren't limited to 80%) are left out.
The entry, worked
Acme's federal taxable income for the year is $100,000, so its tax at the 21% corporate rate is $21,000. It paid $15,000 in quarterly estimates during the year, booked as prepaid income taxes.
| Account | Debit | Credit |
|---|---|---|
| Income tax expense | $21,000.00 | |
| Prepaid income taxes | $15,000.00 | |
| Income taxes payable | $6,000.00 | |
| Total | $21,000.00 | $21,000.00 |
The year carries its full $21,000 of current federal tax, and the $6,000 still owed sits as a liability until the return is filed.
Common questions
Do I need to file Form 1120 if we made no revenue?
Yes. A domestic C corporation files every year, whether or not it has taxable income.
Can I get more time?
Form 7004 gives an automatic six-month extension to file. It doesn't extend the time to pay, so tax owed is still due on the original date.
What are net operating losses worth?
Losses from 2018 onward carry forward with no expiry, but in a later year they can offset at most 80% of taxable income. They're worth tracking from the first year.
Where it comes up
The glossary entries, founder guides and lessons on this site that use the term and link here.
- First-year compliance calendar for a Delaware C-corpDelaware franchise tax, 1099s, the federal return, payroll filings, state annual reports and sales tax: the deadlines a young C-corp misses most, by month.Guide · 5 min
- Form 941 and payroll tax deposits for startupsWhat Form 941 reports, monthly vs semiweekly deposits, the $100,000 next-day rule, FUTA, the R&D payroll credit, and what your provider can’t do.Guide · 7 min
- Startup tax deadlines by month for a C-corpFederal tax deadlines for a calendar-year C-corp, month by month: W-2s, 1099s, Form 941, Form 1120, estimated taxes and Delaware franchise tax.Guide · 5 min
- Form 1120: what to give your tax preparer, and whenWhat a startup hands its tax preparer for Form 1120: closed books, a balance sheet that ties to Schedule L, book-to-tax items, ownership and 1099s.Guide · 5 min
- Cash vs accrual accounting for startups, and the IRS ruleCash or accrual for a startup: why investors and auditors read accrual, when the IRS lets a C-corp file on cash, and the 2026 gross receipts limit.Guide · 5 min
Read further
General information for US companies, not tax, legal or accounting advice. Check the specifics with a CPA before you act on them.