Income

Caution: Report only trade or business activity income on lines 1a through 5. Don’t report rental activity income or portfolio income on these lines. See Passive Activity Limitations, earlier, for definitions of rental income and portfolio income. Rental activity income and portfolio income are reported on Schedules K and K-1. Rental real estate activities are also reported on Form 8825.

Tax-exempt income. Don’t include any tax-exempt income on lines 1a through 5. A corporation that receives any tax-exempt income other than interest or holds any property or engages in any activity that produces tax-exempt income reports this income on Schedule K, line 16b, and in box 16 of Schedule K-1 using code B.

Report tax-exempt interest income, including exempt-interest dividends received as a shareholder in a mutual fund or other regulated investment company, on Schedule K, line 16a, and in box 16 of Schedule K-1 using code A.

See Deductions , later, for information on how to report expenses related to tax-exempt income.

Canceled debt exclusion. If the corporation has had debt discharged resulting from a title 11 bankruptcy proceeding or while insolvent, see Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness, and Pub. 908, Bankruptcy Tax Guide.

Line 1a. Gross Receipts or Sales Enter on line 1a gross receipts or sales from all business operations except for amounts that must be reported on lines 4 and 5. If a cost offset method under section 451(b) or (c) is elected, the resulting gross income is reported on line 1a.

Special rules apply to certain income, as discussed below.

Advance payments. In general, advance payments are reported in the year of receipt. For exceptions to this general rule for corporations that use an accrual method of accounting, see the following.

• To report income from long-term contracts, see section 460.

• For rules that allow a limited deferral of advance payments beyond the current tax year, see section 451(c) and Regulations section 1.451-8.

• For information on adopting or changing to a permissible method for reporting advance payments for goods and services by an accrual method corporation, see the Instructions for Form

• If this is the corporation’s final return and it will no longer exist, check the “Final return” box. Also check the “Final K-1” box on each Schedule K-1.

• If the corporation changed its name since it last filed a return, check the “Name change” box. Generally, a corporation must also have amended its articles of incorporation and filed the amendment with the state in which it was incorporated.

14 Instructions for Form 1120-S (2025)

Installment sales. Generally, the installment method can’t be used for dealer dispositions of property. A “dealer disposition” is any disposition of:

• Personal property by a person who regularly sells or otherwise disposes of personal property of the same type on the installment plan, or

• Interest income derived in the ordinary course of the corporation’s trade or business, such as interest charged on receivable balances. See Temporary Regulations section 1.469-2T(c)(3).

• Recoveries of bad debts deducted in prior years under the specific charge-off method.

• Real property held for sale to customers in the ordinary course of the taxpayer’s trade or business.

These restrictions on using the installment method don’t apply to dispositions of property used or produced in a farming business or sales of timeshares and residential lots for which the corporation elects to pay interest under section 453(l)(3).

For sales of timeshares and residential lots reported under the installment method, each shareholder’s income tax is increased by the shareholder’s pro rata share of the interest payable under section 453(l)(3).

• Taxable income from insurance proceeds.

• Any amount included in income from Form 6478, Biofuel Producer Credit.

• Any amount included in income from Form 8864, Biodiesel, Renewable Diesel, or Sustainable Aviation Fuels Credit.

Enter on line 1a the gross profit on collections from installment sales for any of the following.

• Dispositions of property used or produced in the trade or business of farming.

• Certain dispositions of timeshares and residential lots reported under the installment method.

Attach a statement showing the following information for the current and the 3 preceding years.

• Gross sales.

• Cost of goods sold.

• Gross profits.

• Percentage of gross profits to gross sales.

• Amount collected.

• Gross profit on the amount collected.

Line 1b. Returns and Allowances Enter cash and credit refunds the corporation made to customers for returned merchandise, rebates, and other allowances made on gross receipts or sales.

Line 2. Cost of Goods Sold Complete and attach Form 1125-A, Cost of Goods Sold, if applicable. Enter on line 2 the amount from Form 1125-A, line 8. See Form 1125-A and its instructions.

Line 4. Net Gain (Loss) From Form 4797

Caution: Include only ordinary gains or losses from the sale, exchange, or involuntary conversion of assets used in a trade or business activity. Ordinary gains or losses from the sale, exchange, or involuntary conversion of rental activity assets are reported separately on Form 8825, line 21, or Schedule K, line 3, and box 3 of Schedule K-1, generally as a part of the net income (loss) from the rental activity.

A corporation that is a partner in a partnership must include on Form 4797, Sales of Business Property, its share of ordinary gains (losses) from sales, exchanges, or involuntary conversions (other than casualties or thefts) of the partnership’s trade or business assets.

Corporations shouldn’t use Form 4797 to report the sale or other disposition of property if a section 179 expense deduction was previously passed through to any of its shareholders for that property. Instead, report it in box 17 of Schedule K-1 using code K. See Dispositions of property with section 179 deductions (code K) , later, for details.

Line 5. Other Income (Loss) Enter any other trade or business income (loss) not included on lines 1a through 4. List the type and amount of income on an attached statement.

Examples of other income include the following.

• The recapture amount under section 280F if the business use of listed property drops to 50% or less. To figure the recapture amount, complete Form 4797, Part IV.

• The ratable portion of any positive section 481(a) adjustments resulting from changes in accounting methods. Show the computation of the positive section 481(a) adjustments on an attached statement. In the statement, include, for each section 481(a) adjustment, the total section 481(a) adjustment, the ratable portion included in current year taxable income, and a brief description of the changes in methods of accounting to which the section 481(a) adjustment relates. See Revenue Procedure 2015-13, 2015-5 I.R.B. 419, available at IRS.gov/irb/ 2015-5_IRB#RP-2015-13 .

• Part or all of the proceeds received from certain corporate-owned life insurance contracts issued after August 17, 2006. Corporations that own one or more employer-owned life insurance contracts issued after this date must file Form 8925, Report of Employer-Owned Life Insurance Contracts. See Form 8925.

Don’t include items requiring separate computations by shareholders that must be reported on Schedules K and K-1. See the instructions for Schedules K and K-1 later in these instructions.

Ordinary Income (Loss) From a Partnership, Estate, or Trust

Enter the ordinary income (loss) shown on Schedule K-1 (Form 1065) or Schedule K-1 (Form 1041) or other ordinary income (loss) from a foreign partnership, estate, or trust. Show the partnership’s, estate’s, or trust’s name, address, and EIN on a separate statement attached to this return. If the amount entered is from more than one source, identify the amount from each source.

Don’t include portfolio income or rental activity income (loss) from a partnership, estate, or trust on this line. Instead, report these amounts on Schedules K and K-1 or on Form 8825, line 22a, if the amount is from a rental real estate activity.

Ordinary income or loss from a partnership that is a publicly traded partnership isn’t reported on this line. Instead, report the amount separately on Schedule K, line 10, and in box 10 of Schedule K-1 using code ZZ.

Treat shares of other items separately reported on Schedule K-1 issued by the other entity as if the items were realized or incurred by this corporation.

If there is a loss from a partnership, the amount of the loss that may be claimed by the S corporation is subject to the basis limitations.

If the tax year of the S corporation doesn’t coincide with the tax year of the partnership, estate, or trust, include the ordinary income (loss) from the other entity in the tax year in which the other entity’s tax year ends.

Instructions for Form 1120-S (2025) 15