Where Do Taxes and Licenses Go on a Business Tax Return?
Line 17 on Form 1120, line 12 on Form 1120-S and line 14 on Form 1065. The line carries employer payroll taxes, state unemployment, franchise and property taxes and business licenses. Federal income tax on a C corporation, penalties, and sales tax collected from customers do not belong there.
| Trial balance account | Where it goes on the return | Watch for |
|---|---|---|
| Employer payroll taxes | 1120 line 17, 1120-S line 12, 1065 line 14 | Employer share only |
| State unemployment tax | Same line | Deductible |
| Franchise and property taxes | Same line | Deductible |
| Business licenses | Same line | Deductible |
| Federal income tax (1120) | Not deductible | Schedule M-1 addback |
| Penalties | Never deductible | Schedule M-1 addback |
| Sales tax collected | A liability, not an expense | Schedule L |
| Employee share of payroll tax | Already inside gross wages | Not a second deduction |
One account at a time works until there are 200 of them.
Try it freeWhere Do Taxes and Licenses Go on a Business Tax Return? on a trial balance
| Acct # | Account | Debit | Credit |
|---|---|---|---|
| 1000 | Cash | 42,800.00 | |
| 1200 | Accounts receivable | 68,500.00 | |
| 1300 | Inventory | 55,000.00 | |
| 1500 | Equipment | 145,000.00 | |
| 1510 | Accumulated depreciation | 47,500.00 | |
| 2000 | Accounts payable | 28,400.00 | |
| 2100 | Accrued expenses | 9,200.00 | |
| 2400 | Notes payable | 92,000.00 | |
| 2450 | Due to shareholder | 15,000.00 | |
| 3000 | Common stock | 10,000.00 | |
| 3900 | Retained earnings | 86,300.00 | |
| 3950 | Shareholder distributions | 52,000.00 | |
| 4000 | Gross receipts | 612,000.00 | |
| 5000 | Cost of goods sold | 318,000.00 | |
| 6000 | Salaries and wages | 88,000.00 | |
| 6050 | Officer compensation | 72,000.00 | |
| 6300 | Depreciation expense | 21,500.00 | |
| 6900 | Other operating expenses (the account this page is about) | 37,600.00 | |
| Total | 900,400.00 | 900,400.00 |
Example journal entries
| Account | Debit | Credit |
|---|---|---|
| Payroll taxes | 3,060.00 | |
| Payroll liabilities | 3,060.00 |
One line, several taxes, and a few impostors
Deductible on this line: the employer share of Social Security and Medicare, federal and state unemployment tax, state franchise taxes in most states, property taxes on business assets, and business licenses and permits.
Not deductible, and frequently found here anyway:
Federal income tax on a C corporation. It is a Schedule M-1 addback, and it is one of the few M-1 items visible from the face of the return. Taxable income is computed before the federal income tax deduction, so leaving it in the deduction understates income by the whole provision.
Penalties. Never deductible. Interest on a corporate federal income tax underpayment generally is not either. Both usually arrive in the same account as the tax itself.
Sales tax collected from customers. A liability, not an expense. Remitting it is not a deduction, and a client whose books treat the remittance as a tax expense is usually also reporting the collections as revenue.
The employee share of payroll tax. Already inside gross wages. Recording it again as a tax deducts the same money twice.
The ratio check
Employer payroll tax should be roughly 7.65% of wages up to the Social Security wage base, plus Medicare above it, plus unemployment tax, which is small and capped per employee.
An account closer to 15% of payroll usually has both halves in it, which means the deduction is overstated by about half the balance. That check takes ten seconds and catches a genuine error.
State taxes and the pass through question
State income taxes are generally deductible for federal purposes, which is why a state provision is treated differently from a federal one on Schedule M-1.
On a pass through, state taxes paid at the entity level, including pass through entity taxes paid on behalf of owners, have their own reporting consequences and belong in their own account rather than lumped with payroll taxes. Keeping them separate makes the M-1 and the K-1 disclosures mechanical instead of a reconstruction.
Tax return treatment
| Form | Line |
|---|---|
| Form 1120 | Page 1 line 17, taxes and licenses |
| Form 1120S | Page 1 line 12, taxes and licenses |
| Form 1065 | Page 1 line 14, taxes and licenses |
Common questions
What line is taxes and licenses on each business return?
Line 17 on Form 1120, line 12 on Form 1120-S and line 14 on Form 1065.
Does federal income tax go in taxes and licenses?
No. On a C corporation the federal income tax provision is not deductible and is added back on Schedule M-1. Taxable income is computed before it, so leaving it in the deduction understates income by the full provision.
Is sales tax collected from customers deductible?
No. It never belonged to the business, so it is a liability rather than an expense and remitting it is not a deduction. Books that deduct the remittance usually also report the collections as revenue.
How can I tell if the employee share of payroll tax is in there?
Compare the account to payroll. Employer tax should be around 7.65% of wages up to the wage base plus unemployment tax. An account near 15% of payroll has both halves in it and overstates the deduction by about half.
Related answers
Go deeper
This page is the short answer. These articles work through the same ground in detail.
Last reviewed October 18, 2026.