| name | form-1120-cash-basis-filing |
| description | Complete Form 1120 preparation for C-Corp cash-basis filers — includes TaxAct Business Online interview flow for Schedule L, M-1, M-2 |
| version | 2.0.0 |
| source | auto-extracted + session-learned |
| extracted | "2026-04-15T00:00:00.000Z" |
| metadata | {"tags":["tax","form-1120","c-corp","cash-basis","corporate-tax","taxact"]} |
Form 1120 Cash-Basis Filing
When preparing Form 1120 for a cash-method C-Corp, use the expense sheet (bank-activity view) as authoritative source of truth for revenue and expenses. Map each expense line to corresponding Form 1120 line items, then coordinate Schedule J, L, K, M-1, M-2. FreeTaxUSA does not support Form 1120; use TaxAct Business Online, IRS PDF, or PdfFiller.
TaxAct Business Online — Interview Flow
TaxAct uses a guided interview format. The sidebar sections are:
About the Business > Officers > Federal (Income, Deductions, Credits, Miscellaneous, Summary) > State > Review > Filing
Schedule L, M-1, M-2 (under Federal > Miscellaneous)
Balance Sheet - Assets (3+ pages)
- Page 1: Cash, Trade notes/accounts receivable, Inventories, U.S. government obligations
- Page 2: Tax-exempt securities, Loans to shareholders, Mortgage/real estate loans, Buildings/depreciable assets, Accumulated depreciation
- Page 3: Depletable assets, Accumulated depletion, Land (net of amortization), Intangible assets
- Other Current Assets: Freeform description + BOY/EOY
- Other Investments: Freeform description + BOY/EOY
- Other Assets: Freeform description + BOY/EOY
Balance Sheet - Liabilities (3 pages)
- Liabilities: Accounts payable, Mortgages/notes/bonds < 1yr, Loans from shareholders, Mortgages/notes/bonds >= 1yr
- Current Liabilities: Freeform description + BOY/EOY — use for "Federal income tax payable"
- Other Liabilities: Freeform description + BOY/EOY
Balance Sheet - Stockholder Equity (1 page)
- Preferred stock, Common stock, Additional paid-in capital, Retained earnings appropriated, Adjustments to shareholder equity, Cost of treasury stock
CRITICAL: "Retained earnings unappropriated" (Schedule L Line 24) is NOT shown on this page. TaxAct auto-computes it from Schedule M-2 ending balance.
Schedule M-1 — Reconciliation (7 pages + overview)
- Federal income tax expense on books (Line 2)
- Excess of capital losses over capital gains (Line 3)
- Income on tax return not in books (Line 4)
- Expenses in books not on return — depreciation (Line 5a)
- Expenses in books not on return — itemized list (Line 5b): accrued fees, vacation/bonus, bad debt, amortization, fines, goodwill, life insurance premiums, prepaid, reserves, state tax, asset sale loss
- Income in books not on return (Line 7): tax-exempt interest, asset sale gain, installment sales, life insurance proceeds, unearned revenue, other
- Depreciation on return not in books (Line 8a)
- Other deductions on return not in books (Line 8b): same itemized categories
KEY: M-1 Line 10 = Page 1 Line 28 (taxable income BEFORE NOL). Do NOT include NOL deduction on M-1 Line 8. NOL is a Line 29a deduction, separate from M-1 reconciliation.
- Reconciliation Overview: verify Line 10 = Page 1 Line 28
Schedule M-2 — Retained Earnings (5 pages + overview)
- Beginning of year balance (from prior year M-2 Line 8 or reconstructed)
- Other additions (freeform description + amount)
- Distributions: cash / stock / property
- Other reductions (freeform description + amount)
- M-2 Overview: ending balance = BOY + net income + additions - distributions - reductions
Miscellaneous Topics (checkbox page)
- Estimated Tax Penalty (Form 2220) — select this if prior year tax was $0 to claim safe harbor
- Alternative Minimum Tax (Form 4626) — only for $1B+ corporations
- Excise tax on stock repurchase (Form 7208)
- Foreign ownership reporting
- S-Corp election (Form 2553)
- 2026 Estimated Tax worksheet
TaxAct Pitfalls
- Excessive whitespace — pages have huge blank areas. Use browser
find tool to locate buttons rather than scrolling.
- RE unappropriated missing — TaxAct does NOT show a field for Schedule L Line 24. It auto-computes from M-2 ending balance. Fill M-2 first.
- Estimated tax penalty — TaxAct auto-calculates a penalty if you skip Form 2220. Select the checkbox to enter prior year tax = $0 for safe harbor.
- Federal Owed in header — includes TaxAct's filing fee (~$55), so the displayed amount is higher than actual tax.
- Line 26 Other Deductions — no generic "Other" field. Map expenses to TaxAct's predefined categories (Professional dues, Contracted services, Janitorial, Utilities, Telephone, Office expenses).
- Balance sheet won't balance until M-2 is completed and RE unappropriated auto-populates.
Cross-Check Verification
| Check | Formula |
|---|
| Schedule L balance | Total assets = Total L&E (both BOY and EOY) |
| M-1 reconciliation | Line 10 = Page 1 Line 28 (pre-NOL) |
| M-2 → Schedule L | M-2 ending balance = Schedule L Line 24 (RE unappropriated EOY) |
| Tax computation | Taxable income x 21% = Tax (Schedule J) |
| Page 1 flow | Line 11 - Line 27 = Line 28 |
| NOL limit | 80% of Line 28 under TCJA |
