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eligible employer pays to employees after March 12, 2020 and,generally, before October 1, 2021. See Employee Retention Credit(ERC) on Page I-2.The corporation’s deduction for social security and Medicare taxshould not be reduced by amounts claimed on its employment taxreturn for the nonrefundable and refundable portions of the employee retention credit (ERC) or qualified sick and family leave wagescredit. Report the ERC as a reduction of wages on line 12 or line13, as applicable (or as a reduction of qualified health plan costson line 24 for the portion of the ERC attributable to those costs).Report any sick and family leave wages as income on line 10.In this example, taxes reported on line 17 include payroll taxesplus 7,000 of state estimated tax payments. To keep the examplesimple, a 6% total tax rate was assumed for SUTA and FUTA andall payroll taxes were deposited before year end. Also assume thatthe corporation did not qualify for either the ERC or qualified sickand family leave wages credits. Note: State sales tax collected and paid over to the state isnot reported on Form 1120 as income or as an expense. Sales taxcollected from customers is recorded as a liability on the balancesheet. The sales tax liability account is debited when a paymentis made to the state.Line 18: Interest. Enter interest expense incurred from businessoperations. See Business Interest Expense Limitation on PageC-14.Certain limitations may apply: See Temp. Reg. 1.163-8T for interest allocation rules when theloan proceeds were used for more than one purpose. Interest on debt used to purchase tax-free investments is notdeductible. See IRC Sec. 265(b) for exceptions. Generally, cash basis taxpayers cannot deduct prepaid interest. Interest and carrying charges on straddles must be capitalized.See IRC Sec. 263(g). Interest on debt allocable to the production of qualified propertyand on debt allocable to an asset used to produce the qualifiedproperty must be capitalized. See IRC Sec. 263A and Regs.1.263A-8 through 1.263A-15. Interest on an underpayment of tax due to certain undisclosedtransactions. See IRC Sec. 7872 for rules on below-market rate loans. See IRC Sec. 163(e) to figure the disqualified portion of intereston certain high-yield OID obligations. See IRC Sec. 264(f) for allocations to unborrowed policy cashvalues.Shout and Jump paid 6,175 interest on the loan for the airplane.The interest expense deduction is not limited since Shout andJump has gross receipts of less than 26 million.Line 19: Contributions. Enter charitable contributions actuallypaid within the tax year and any unused contributions carried overfrom prior years. The total amount claimed on line 19 generallycannot be more than 10% (25% for certain qualified contributionsmade in 2021) of adjusted taxable income.Unallowed deductions because of the limitation can be carriedover to the next five tax years. See instructions for Form 1120for further rules and information. See Charitable Contributions onPage C-14 for other special rules.Line 20: Depreciation. Enter on line 20 depreciation not claimedon Form 1125-A (COGS) or elsewhere on the return. See Tab Jand Form 4562 instructions.See Form 4562 on Page C-25 and Depreciation Schedule—Corporations on Page C-28. For tax purposes, Shout and Jump,Replacement Page 1/2022Inc., elected the Section 179 deduction. For book purposes, theSection 179 deduction is not allowed (five-year SL depreciationis used). The difference between book and tax depreciation isreconciled on Schedule M-1.Line 21: Depletion. See Depletion on Page J-10.Line 22: Advertising. The corporate books show advertising expenses in the amount of 11,167, exclusive of the 2,016 incurredas start-up costs.Line 23: Pension, profit-sharing, etc., plans. See Tab K.Line 24: Employee benefit programs. The corporation paid 8,000 in group medical insurance premiums for the owners andother employees. The benefit is tax free to all employees of a Ccorporation. In the partnership and S corporation examples, thebenefit is tax free to the nonowner employees and taxable to thetwo owners.Qualified small employers are eligible for the small employer healthinsurance credit (IRC Sec. 45R). The amount of the credit is up to50% of the lesser of employer-paid premiums or the small businessbenchmark premium. For further coverage see Small EmployerHealth Insurance Credit on Page K-17.The corporation’s deduction for employee benefit programs should not be reduced by amounts claimedon its employment tax return for the qualifiedsick and family leave wages credits. However,the portion of the ERC attributable to qualifiedhealth plan costs should be reported as a reduction of those costs. For purposes of this example it is assumed thatShout and Jump does not qualify for the small employer healthinsurance credit, sick and family leave credits, or ERC.Line 25: Reserved for future use. This is where the domesticproduction activities deduction was formerly reported.Line 26: Other deductions. Attach a schedule to the tax returnlisting all other deductions that are not deductible elsewhere onForm 1120. See the schedule Other Deductions on Page C-27.Items to report here include: Amortization from Form 4562. Certain business start-up and organizational costs. Dividends paid in cash on stock held by an employee stockownership plan. See Form 1120 instructions for limitations. 50% of certain meals. The 50% limit will not apply to expenses for food or beverages provided by a restaurantin 2021 or 2022. Entertainment is 100% disallowedbeginning in 2018 [IRC Sec. 274(n)]. Note: Forpurposes of the example, the meals were not provided by a restaurant and are still subject to the 50%limit.See Tab 9 in the 1040 Quickfinder Handbook forexceptions to 50% limitation. Any ordinary loss from a partnership (Schedule K-1, Form 1065). Any net negative Section 481(a) adjustment. Any additional ordinary and necessary business expense notlisted elsewhere including insurance, legal and professional fees,supplies, and utilities. Certain qualified costs for qualified film or television productions,environmental remediation, disaster expenses, and reforestation.Certain limitations apply to deductions for gifts, luxury water travel,and convention expenses. See IRS Pub. 463. Do not deduct anyexpenses related to tax-exempt income, penalties imposed onthe corporation, federal income taxes paid, or lobbying expenses.Line 28. Subtract line 27 from line 11. Special at-risk rules generallyapply to closely held corporations (IRC Sec. 465). See instructionsfor Form 1120.2021 Tax Year Small Business Quickfinder HandbookC-21

Line 29a: Net operating loss. Enter online 29a NOLs that are carried forward tothis tax year. In tax years beginning afterDecember 31, 2020, taxpayers are allowed[IRC Sec. 172(a)(2)(B)] a 100% deductionfor NOLs generated in tax years beginningbefore January 1, 2018, and a deductionlimited to 80% of modified taxable incomefor NOLs generated in tax years beginningafter December 31, 2017. Attach a scheduleto the return showing the computation ofthe NOL. See IRC Sec. 172(a). Generally,a corporation can carry an NOL forward indefinitely following the year of the loss. SeeNet Operating Losses (NOLs) on Page C-15for special rules related to the CARES Act.Line 29b: Special deductions. The dividends-received deduction from ScheduleC is entered on line 29b.Line 31: Total tax. The corporation figuresits tax on Schedule J. See the CorporationTax Rate Schedule on the front cover. Thetax is adjusted for various items such as thegeneral business credits (Form 3800), foreigntax credit (Form 1118), PHC tax (SchedulePH of Form 1120), and other adjustments.Line 32: Reserved for future use.Line 34: Penalty. Use Form 2220 to calculate any penalty for underpayment ofestimated tax.Line 35: Amount owed. If there is a balance due, it must be deposited by the duedate of the return (April 15th for a calendar-year corporation) using EFTPS (seeElectronic Federal Tax Payment Systemon Page I-9). The first quarter estimatedpayment for the next year is due April 15 fora calendar-year corporation.Cost of Goods SoldForm 1125-ASee Inventories on Page L-7 for generalrules on COGS.Line 1. Inventory is usually the same as theprevious year ending inventory. However,a change in inventory methods, such as aswitch from first-in first-out (FIFO) to LIFO,or a change to the UNICAP rules mayrequire a change in the beginning inventoryamount. The difference generally results ina Section 481(a) adjustment—see Changein Accounting Method on Page L-4.Line 2. Purchases refers to merchandisebought for resale, or, for a manufacturer,raw materials or parts acquired for transformation into the finished product. Anymerchandise withdrawn for personal useis subtracted from the amount reported online 2. In this example, the amount paid forinventory is reported on line 2. The accrualmethod is generally required for purchasesand sales of inventory. However, Shoutand Jump, Inc., has average annual grossC-222021 Tax Year Form1125-ACost of Goods Sold(Rev. November 2018)OMB No. 1545-0123Attach to Form 1120, 1120-C, 1120-F, 1120S, or 1065.a Go to www.irs.gov/Form1125A for the latest information.aDepartment of the TreasuryInternal Revenue ServiceNameEmployer identification number41-1234567067,418Shout and Jump, Inc.12Inventory at beginning of yearPurchases . . . . . .12345Cost of labor . . . . . . . . . . .Additional section 263A costs (attach schedule) .Other costs (attach schedule) . . . . . .34567Total. Add lines 1 through 5 .Inventory at end of year . .6767,4185,7268Cost of goods sold. Subtract line 7 from line 6. Enter here and on Form 1120, page 1, line 2 or theappropriate line of your tax return. See instructions . . . . . . . . . . . . . . .Check all methods used for valuing closing inventory:(i) x Cost861,6929a.bLower of cost or market(ii)Other (Specify method used and attach explanation.) a(iii)Check if there was a writedown of subnormal goods. . .acCheck if the LIFO inventory method was adopted this tax year for any goods (if checked, attach Form 970).adIf the LIFO inventory method was used for this tax year, enter amount of closing inventory computedunder LIFO . . . . . . . . . . . . . . . . . . . . . . . . . . .9dIf property is produced or acquired for resale, do the rules of section 263A apply to the entity? See instructions .ef.Was there any change in determining quantities, cost, or valuations between opening and closing inventory? If “Yes,”attach explanation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .receipts of 26 million or less, so it qualifiesto use the cash method.Line 3. Payroll costs are included in inventory when theprincipal business is manufacturing. Wages paid to employeeswho manufacture the product, theirsupervisors, and the quality controlpersonnel are included on line 3.Other labor costs (such as salescommissions) may seem closely related toinventory, but are deducted on page 1 ofForm 1120.Line 4: Additional Section 263A costs(uniform capitalization rules). See Uniform Capitalization Rules on Page L-8,which includes a list of exceptions whereUNICAP rules do not apply.Line 5. Enter other costs included in inventory that are not listed on line 2, 3, or 4.Line 7. In this example, a physical inventorycount was taken at the end of the year. Thecost of inventory in stock was 5,726.Line 9. See Inventory Methods on PageL-7.Dividends and SpecialDeductionsSchedule C, Page 2, Form 1120See Dividends Received Deduction onPage C-13. See Form 1120 instructions fora description of each deduction on Schedule C. There was no information to reporton Schedule C in this example, so it wasomitted. However, Schedule C should beincluded as part of a complete and accurateForm 1120.Tax ComputationSchedule J, Page 3, Form 1120Line 1. Members of a controlled group ofcorporations (as defined in IRC Sec. 1563),Small Business Quickfinder HandbookYesx NoYesxNomust attach Schedule O for a controlledgroup member.Line 2. The tax is entered on line 2.Line 3: Form 8991, Base erosion minimumtax. See Base Erosion Minimum Tax onPage C-16.Lines 5a–5e. See Tab O for informationon tax credits.Line 8. A corporation istaxed as a PHC underIRC Sec. 542 if:1) At least 60% of itsadjusted ordinarygross income forthe tax year is PHC income, and2) At any time during the last half of thetax year more than 50% in value of itsoutstanding stock is owned, directly orindirectly, by not more than five individuals.See Tab F for more details.Line 9. Taxes reported here include: Form 4255 (Recapture of InvestmentCredit). Form 8611 (Recapture of Low-IncomeHousing Credit). Form 8697 (Interest Computation Underthe Look-Back Method for CompletedLong-Term Contracts). Form 8866 (Interest Computation Underthe Look-Back Method for Property Depreciated Under the Income ForecastMethod). Form 8902 (Alternative Tax on QualifyingShipping Activities).See Form 1120 instructions for additionaltaxes and interest that should be reported.Line 12: Reserved for future use.Line 14: Estimated tax payments. Corporations are required to make estimated taxpayments. Form 1120-W (Estimated Taxfor Corporations) is used to calculate therequired estimated tax payments and duedates. See Estimated Tax on Page C-2.

Payroll Tax ReturnsSee IRS Pub. 15 (Circular E) (Employer’s Tax Guide); IRS Pub. 15-A (Employer’s Supplemental Tax Guide); IRS Pub. 15-B(Employer’s Tax Guide to Fringe Benefits); and IRS Pub. 15-T (Federal Income Tax Withholding Methods) Tab I TopicsCOVID-19 Payroll Relief. Page I-1Payroll Tax Deposit Requirements. Page I-7Outsourcing Payroll. Page I-8Payroll Tax Payments. Page I-9Withholding Federal Income Tax. Page I-9Withholding Methods. Page I-10FICA and FUTA Wage Base. Page I-10New Hire Reporting. Page I-11Payroll Tax Reporting. Page I-11Special Compensation. Page I-17Gross-Up Computation. Page I-19Disregarded Entity Employment Taxes. Page I-19Trust Fund Recovery Penalty. Page I-20Other Payroll Tax Issues. Page I-20COVID-19 Payroll ReliefOverviewAs the nation continues to deal with the impact of the coronaviruspandemic, the federal government has provided a host of reliefprovisions intended to provide economic relief to businesses andindividuals. Some are by way of legislation, while others are administrative relief provisions. Note: The IRS has developed a website on Coronavirus TaxRelief that is available at www.irs.gov/coronavirus. It is updatedas needed to reflect the latest IRS guidance.The COVID-19 pandemic was declared a national disaster onMarch 13, 2020, with an effective date of March 1, 2020. When adisaster is declared, a wide range of federal assistance programsare made available, including relief that can be provided by the IRS.Various Internal Revenue Code sections and other IRS guidancealso include relief provisions that an employer can make availableto employees who are victims of a federally declared disaster(emergency or major). Employee leave-sharing programs areprovided f

Quick nder Small Business Quickfinder Handbook (2021 Tax Year) Post-publication Updates Replacement Pages for Two-Sided (Duplex) Printing Instructions: This packet contains "marked up" changes to the pages in the Small Business Quickfinder Handbook that were affected by developments after the Handbook was published.