Foreign founders of U.S. companies are often confused about whether they need to file Form 1120 or Form 1040-NR. Both forms are U.S. tax returns, but they apply in very different situations. Filing the wrong one—or failing to file at all—can create compliance issues and penalties.
This article breaks down what Form 1120 is, what Form 1040-NR is, when each applies, and how foreign entrepreneurs can know which one is required. We’ll also cover common scenarios, real-world examples, and how Bookmate helps foreign business owners stay on track.
What is Form 1120?
Form 1120 is the U.S. corporate income tax return. It is filed by corporations, including C-Corps formed in states like Wyoming or Delaware. The return reports the corporation’s income, expenses, and taxes owed. Even if the corporation had no revenue, the IRS still requires the form to be filed each year.
Foreign-owned corporations also often need to file Form 5472 alongside Form 1120 if 25% or more of the corporation is foreign-owned. Form 5472 is an information return that discloses transactions between the corporation and its foreign shareholders.
What is Form 1040-NR?
Form 1040-NR is the U.S. nonresident income tax return. It is filed by individuals who are not U.S. residents but earned U.S.-sourced income. For business owners, this usually applies if the foreign individual is considered to be engaged in a U.S. trade or business.
For example, if you operate an e-commerce business that stores inventory in U.S. warehouses, or you provide services physically while present in the U.S., the IRS may require you to file Form 1040-NR. To file it, you also need an ITIN (Individual Taxpayer Identification Number).
How do you know which form applies?
The key difference is this: Form 1120 is for the company. Form 1040-NR is for the individual.
- If you formed a U.S. corporation, the corporation itself must file Form 1120 each year. If it has foreign shareholders, it may also need to attach Form 5472.
- If you own a foreign-owned single-member LLC, the LLC must file Form 5472 along with a pro forma Form 1120 each year, even if there was no income.
- If you are a foreign individual earning U.S.-sourced income directly—either because you are physically present in the U.S. doing business or because your activities create a U.S. trade or business—you may need to file Form 1040-NR.
- In some cases, both can apply. The corporation files Form 1120 (with 5472 if required), and the individual shareholder files Form 1040-NR if they also had personal U.S. income.
Common scenarios
A foreign founder sets up a Delaware C-Corp to raise venture capital. The corporation must file Form 1120 each year, and if it has foreign shareholders, it must also file Form 5472. The founder does not file Form 1040-NR unless they also personally earned U.S. income.
Another founder forms a Wyoming LLC that sells products through Amazon FBA. Because the inventory is stored in U.S. warehouses, the IRS may consider the owner to be engaged in a U.S. trade or business. The LLC may need to file Form 5472 with a pro forma 1120, while the owner may also need to file Form 1040-NR personally.
A consultant from the UK travels to the U.S. to deliver training services for clients while physically present in the country. Even if the income flows through a foreign-owned LLC, the consultant’s physical presence makes the income U.S.-sourced, so Form 1040-NR is required for the individual.
Why getting it right matters
Filing the wrong return can create serious problems. If a corporation fails to file Form 1120, it risks IRS penalties and loss of good standing. If a foreign individual fails to file Form 1040-NR when required, they may face tax assessments, penalties, and difficulties with future U.S. visa or immigration matters.
The IRS is strict about these filings because they are designed to track foreign ownership and cross-border income.
How Bookmate helps
Bookmate specializes in U.S. federal compliance for foreign-owned companies. We:
- Prepare Form 1120 with Form 5472 for foreign-owned corporations.
- File Form 5472 with a pro forma 1120 for foreign-owned single-member LLCs.
- Guide clients on when Form 1040-NR may apply to them personally and refer to trusted partners for ITIN applications at theitin.com.
We don’t apply for ITINs directly, but we ensure our clients know when they may be required and how to handle them properly.
Final thoughts
The difference between Form 1120 and Form 1040-NR comes down to whether the filing is for the company or the individual.
Corporations must file Form 1120 each year, foreign-owned single-member LLCs must file Form 5472 with a pro forma 1120, and foreign individuals file Form 1040-NR only if they personally had U.S. income or were engaged in a U.S. trade or business. In some cases, both apply.
Bookmate helps foreign founders navigate these rules so they can file correctly, avoid penalties, and focus on growing their businesses.
Learn more at trybookmate.co or book a consultation today.
