Key Takeaways

• Form 2553 tells the IRS you want a business taxed as an S corporation.
• You usually gotta file it pretty quick after forming or deciding to change.
• Eligibility rules exist for who can even use this form thing.
• Missing the deadline can mean you don’t get the S corp treatment right away.

What Even Is Form 2553 Anyway?

What is Form 2553? You heard of it, maybe not. It’s just a piece of paper, really, you send the tax people, telling them something important about your business. Like, “Hey, IRS, this company here, we want you to think of it different for taxes than you normally would.” That different way? It’s called an S corporation election. Why do that? People hope it saves them money on taxes, mostly. Is that why you’d file it? Could be. You gotta tell them you elect this status, see. It don’t happen by magic. A form gotta be submitted.

Choosing S Corp Status with Form 2553

Making the S corporation election, that’s the big deal this form does. Why pick an S corp? It’s a whole tax scheme thing. Instead of the business paying income tax itself, like a regular C corp, the profits and losses kinda flow through to the owners’ personal tax returns. This avoids double taxation, which a C corp might hit you with – the company pays tax, then shareholders pay tax on dividends. Does that sound fun? Not really. So, the S corp election via Form 2553 avoids that double dip, perhaps. Figuring out which business entity to choose is key before filing this, you know. You gotta decide first.

Who Can File This Thing? Eligibility Rules

Not just anybody can send in Form 2553 and get S corp status. Oh no, rules apply. The IRS got requirements. What kind of business can file? Domestic corporations usually. Or maybe certain LLCs or partnerships electing to be taxed as corporations first. How many owners can it have? Usually no more than 100 shareholders. Who can own shares? Mostly individuals, estates, and certain trusts. No partnerships or corporations owning shares, usually. And they can only have one class of stock. Any exceptions? A few, sure, but those are the main fences you gotta stay inside.

When Do You Need to Get Form 2553 In? Deadlines Matter

The timing on Form 2553 is kinda strict. Like, really strict. When must you file it? Generally, you have a two-month-and-15-day window. From when? From the beginning of the tax year you want the election to start. Or, if your business is new, within two months and 15 days of its formation date. Which date is the start of your tax year? Could be January 1st, or when business activities began. Miss that deadline? It makes things complicated. You might not get S corp status for the current year, gotta wait till the next one. Can you get an extension? Not really for this form, usually. There are late election relief procedures, but those aren’t guaranteed and add steps.

Filling Out Form 2553: What Goes Where?

Okay, so you qualified, you know the deadline. Now, how to fill out the form? It asks for basic business info – name, address, EIN. Then it asks about the election itself – when you want it to be effective. What date do you put? Usually the first day of the tax year you want S corp status for. It also asks about your shareholders. You gotta list ’em, their names, addresses, social security numbers, and how many shares they own. Do all shareholders gotta sign? Yep, they pretty much all do. That can be fun tracking everyone down. Make a mistake? Might get rejected.

After Filing Form 2553: What Happens Then?

So you mailed it in, or maybe filed electronically. What’s next? You wait. Does the IRS send you a gold star? Not quite. They usually send a letter saying they accepted or rejected your election. When do they send that? Can take a few weeks, maybe months. Should you just start acting like an S corp right away? Most people do, if they filed timely. But getting that acceptance letter is important proof. What if you never hear back? You might need to follow up. Don’t just assume it went through.

Potential Pitfalls and Late Election Relief

Stuff happens. Maybe you missed the deadline. Or filled the form out wrong. What are the pitfalls? Missing the filing deadline is a big one. Not getting all shareholder signatures is another. Not being eligible in the first place is a problem. If you filed late, is all hope lost for the current year? Maybe not. The IRS has procedures for “late election relief.” This allows certain businesses to still get S corp status for the current year, even if they filed Form 2553 after the usual deadline. What do you gotta do for late relief? Usually, you need to show “reasonable cause” for being late. Like, maybe your accountant messed up, or you had a natural disaster. You also gotta show you’ve been acting like an S corp since the date you wanted the election to start. It’s not automatic, though. Getting relief is not always a sure thing, it is complex like dealing with other tax things like Form 1099-NEC situations.

Form 2553 in Context: S Corp Taxation Basics

Filing Form 2553 is just the start. It gets you the S corp status. But what does that mean for actual taxes? It means the business itself doesn’t pay federal income tax. Instead, income and losses are reported on the owner’s personal returns, kinda like a partnership or LLC treated as a partnership. This flow-through treatment is the main draw. How do owners get paid? They take a reasonable salary, reported on a W-2, and any remaining profits can often be distributed as dividends, which aren’t subject to self-employment tax. This salary vs. distribution split is a key tax strategy for S corps. It is why people choose this entity structure after looking into their options, you see.

Frequently Asked Questions About Form 2553 and Form 2553

What is Form 2553 used for?

Form 2553 is used by a business to elect to be taxed as an S corporation by the Internal Revenue Service (IRS).

When is the deadline to file Form 2553?

The deadline is generally two months and 15 days after the beginning of the tax year the election is to take effect, or two months and 15 days after the date the corporation was formed if it’s a new business.

Can an LLC file Form 2553?

Yes, an eligible Limited Liability Company (LLC) can file Form 2553 if it first elects to be taxed as a corporation.

Do all shareholders need to sign Form 2553?

Yes, generally all shareholders who own stock at the time the election is made must consent by signing Form 2553.

What happens if I file Form 2553 late?

If filed late, the S corporation election may not be effective for the current tax year. However, there are procedures for requesting late election relief from the IRS if you meet certain criteria and can show reasonable cause.

Where can I find more information about Form 2553?

You can find detailed information and guidance regarding Form 2553 on the IRS website or consult with a tax professional. You might also look here: Understanding IRS Form 2553, Election by a Small Business Corporation.