Form 2553: Know How and When to File
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What Is Form 2553?
Form 2553, Election by a Small Business Corporation, is an Internal Revenue Service form that can be filed by a business to elect to be registered as an S Corporation rather than a C Corporation.
When a business is registered as a corporation with the IRS, it is formed as a C Corp by default. Many business owners opt to be an S Corp instead for various reasons, one being tax benefits.
C Corporations are often subjected to double taxation which can be a financial burden for a small business. With an S Corp, income is taxed to the shareholders rather than to the corporation.
For the most current PDF version of Form 2553, follow this link to the IRS website.
Purpose of Form 2553
The main purpose of IRS Form 2553 is for a small business to register as an S Corporation rather than the default C Corporation. Most business owners file this form for tax purposes. S Corps save on taxes because the corporation’s taxable income is only taxed once to the shareholders of the corporation.
Owners of an S Corp claim income and losses on their personal tax returns and are taxed at their personal tax rates. C Corporations face taxes at the corporate level and then again at the shareholder level if dividends are paid out.
Read this article to learn more about S Corps and the advantages forming as an S Corp may have for your business.
Who Needs to File Form 2553?
In order for a small business to be eligible to file Form 2553 to elect to register as an S Corporation, they must meet certain qualifying criteria. These requirements include:
- The business must be a domestic corporation or entity
- All shareholders in the corporation must be US citizens or residents
- There cannot be more than 100 shareholders
- Shareholders can only be individuals, estates, exempt organizations, or certain trusts
- The business can only have one class of stock
The last requirement is that the business has or will adopt or change to one of the following tax years:
- Tax year ending on December 31
- Natural business year
- Ownership tax year
- Tax year elected under section 444
- A 52-53-week tax year that ends with reference to one of the other years previously listed
- Any other tax year (including a 52-53-week tax year) for which the corporation (entity) establishes a business purpose.
There are some corporations that are ineligible to file a Form 2553. These corporations include:
- A bank or thrift institution that uses the reserve method of accounting for bad debts
- A corporation that elected to be treated as a possessions corporation
- An insurance company that is subject to tax under subchapter L of the Code
- A domestic international sales corporation
If you would like detailed instructions about how to fill out and file Form 2553, click here.
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How Often Do I Need to File Form 2553?
Once a small business files Form 2553 and is approved by the IRS to be treated as an S Corp, the election remains valid, and the business owner does not have to file Form 2553 every year.
This Form does however have a due date and must be filed on time to take effect for the current tax year for which you are filing. A business has two options for filing Form 2553:
Option 1: No later than two months and 15 days after the beginning of the tax year that the S Corp election is to take effect.
Option 2: Any time during the tax year prior to the tax year the S Corp election is to take effect.
If you are late filing Form 2553 and still want to elect to be an S Corp for the current tax year, you do have some relief options. If you meet the following requirements, you may be able to file Form 2553 late.
- The corporation planned to file an S Corp by the deadline
- The corporation was not disqualified from becoming an S Corp for any other reason- it was only the late filing that disqualified the corporation
- There is reasonable cause for missing the filing deadline
- The corporate submits statements attesting that all shareholders reported their income in a manner consistent with the corporation’s intention to file as an S Corp
Filing Cost for Form 2553
There is no cost to file Form 2553 with the IRS. However, certain special conditions may incur a fee . For example, if your company is using “business purpose” to justify their fiscal year, you will be required to pay a $5,800 fee after filing Form 2553.
This form cannot be filed online and must be mailed to the Internal Revenue Service.
Depending on the state in which you operate your corporation, state taxes may apply, and you may need to file additional documents with your state department. If you are unsure about the laws surrounding your state taxes, you may want to contact a corporate lawyer to provide assistance with filing the correct forms.
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Checking S Corp Status
After you have submitted Form 2553, you can check the status of your corporation by calling the IRS . The IRS will be able to inform you about the status of your application.
It usually takes about 60 days after your application is sent in to receive a determination on your corporation status. Determination can be delayed for a variety of reasons. If you think your application has been delayed, you should contact the IRS directly.
Form 2553 Frequently Asked Questions
How do I know if my form 2553 was approved?
The IRS will contact you within 60 days of submitting your application to give you a verdict. If you have not been contacted by the IRS after 60 days, you can reach out to the IRS directly to inquire about your S Corp election application.
Who is required to consent to the S Corporation election on Form 2553?
All the shareholders in a corporation are required to consent to the S Corp election. On the other hand, to end S Corp election, only one share more than 50% of the outstanding stock is required.
How do I know if I have an S Corp or a C Corp?
If you are unsure which type of corporation your business is registered as, you can call the IRS Business Assistance phone number found on the IRS website. The IRS will be able to review your file and tell you what kind of entity your business is registered as.
Can I submit Form 2553 online?
No. There is currently no option to file this form online. To file Form 2553 you can either mail or fax the form to the IRS.
Get Help with Form 2553
Do you have questions about Form 2553 and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from corporate lawyers who specialize in IRS tax forms like Form 2553.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Form 2553
Texas
Can a single-member LLC elect S corporation status by filing Form 2553?
I am the sole owner of a limited liability company (LLC) and I am considering electing S corporation status for tax purposes. I have heard that filing Form 2553 with the IRS is necessary to make this election, but I am uncertain whether this form can be used by a single-member LLC. I want to ensure that I am taking the correct steps to obtain S corporation status and maximize the tax benefits for my business.
Jennifer B.
Yes, your single-member LLC can elect S corporation tax treatment. The transition requires a two-step process with the IRS. First, since your LLC is currently treated as a disregarded entity for tax purposes, you'll need to file Form 8832 to elect corporate tax treatment. Once the IRS has processed this election, you can then file Form 2553 to specifically request S corporation status. Timing is crucial for this election. For the S corporation status to take effect in the current tax year, you must file Form 2553 either within the first two months and 15 days of that tax year, or at any time during the preceding tax year. Before proceeding, you should verify that your LLC meets all S corporation eligibility criteria. Your business must be domestic, have only permissible shareholders (individuals, certain trusts, or estates), maintain only one class of stock, and not fall into certain prohibited categories like financial institutions or insurance companies.
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