Form 1120, Schedule K, question 1

[kneljo]

On form 1120, Schedule K, question 1 asks which accounting method was used: a) Cash  b) Accrual  c) Other (specify)

Since my startup had no business activity in 2020 (when it was incorporated) should I leave this question blank or check option c) Other and add a note: n/a since no business activity ?

[M-MTax]

Why are you even filing a return if you are not open for business? You shouldn't file a return until the corporation is open and ready to do business and you said there was no business activity. You can file a return for good measure but leave everything blank of which you're not sure and file a zero return.

[kneljo]

Thanks again for the response. It also seemed logical to me that I shouldn't have to file, but when I searched online "should I file from 1120 with no business activity?" there were many competing answers. Some say exactly as you have advised, but others are certain you need to file even without business activity. And so I am filing for good measure and will leave those questions blank that are likely irrelevant given the state of my business. I appreciate your help.

[ErnestoF4]

Yes, you should file. The IRS is expecting a tax return once you are issued an employer identification number (EIN) for business entity like a C corporation (Form 1120). Sometimes based on the EIN being issued the IRS will send out notices that you have not filed. Furthermore, some states, like California, charge fees like franchise fees that are due even if the tax filing is a zero return (or not open for business). 

[kneljo]

Thanks for your input Ernesto—very helpful.