The Secrets of IRS Form 2553: Everything You Need to Know
Are you losing sleep over how to fill out the intricate Form 2553 to transform your company into an S corporation? Well, worry no more! This comprehensive guide breaks down everything you need to know about completing this crucial IRS form to unlock the multitude of advantages that S corps offer.
We will explore all pertinent topics – from determining eligibility, gathering required documents, navigating each section, understanding deadlines, sending the form correctly, and more tips to ensure smooth sailing. Read on to seize control over your company’s tax status and growth trajectory!
Benefits of S Corporation election
Electing S corporation status using Form 2553 opens up game-changing tax benefits and operational flexibility that supercharges business success. As an S corp, your Income flows directly to shareholders instead of the business entity. This skirts double taxation for enhanced savings, transitioning from a C corp to a more favorable S corp tax structure. S corps also enjoy reduced paperwork requirements, increased flexibility in operations, and more.
Pass-through taxation can help small business owners thousands annually. It is because S corp owners only pay taxes on their personal income tax returns.
The IRS Form 2553 itself is relatively simple to complete and submit. However, precautions must be taken to ensure full legal compliance and proper processing of your S corp election. This guide will explore crucial requirements in depth so you can reap the rewards seamlessly. Let’s get started on what you need to know about Form 2553!
Purpose of Form 2553
IRS Form 2553, also known as the “Election by a Small Business Corporation”, is the standardized document entrepreneurs must file to make an election to become an s corporation election under section 1362 (a). Submitting this form enables the IRS to formally recognize your S corp status for tax purposes.
Without filing Form 2553, you cannot legally gain status as an S corporation. Any small business corporation in the U.S. has the option to file the form, provided they meet eligibility rules such as:
- Having 100 or fewer shareholders
- Having only one class of stock
- Not having any nonresident alien shareholders
- Partnerships, multi-member LLCs, C corporations and more can all potentially qualify to become an S corp by submitting Form 2553.
When to file Form 2553?
You can technically file Form 2553 at any point in the tax year preceding the tax year it is to take effect. However, it’s best practice to file as close as the date of incorporation of your business as possible. Form 2553 must be filed no later than two months and 15 days after the beginning of the tax year the election is to take effect.
This timeline is suggested because your S corp election will take effect retroactively on the first day of the tax year in which you file IRS Form 2553. To take full advantage of S corp benefits for the entirety of a tax year, early submission is key.
For example, if you want your S corp status to take effect as of January 1, 2024 you must file form 2553 before or on March 15, 2024. This enables you to file taxes for that full year under the favorable S corp tax structure, potentially affecting your personal tax return.
Step-by-step Form 2553 instructions
Ready to complete your own Form 2553? Follow this walkthrough to ensure nothing falls through the cracks:
Step 1: Confirm Your Business is Eligible
Before anything else, double check that your corporation meets all requirements to elect S corp status:
- Domestic business entity
- 100 or fewer shareholders
- No partnerships or nonresident aliens as shareholders
- Only one class of stock issued
Step 2: Obtain a Copy of the Form
You can download Form 2553 directly from the IRS website. Alternatively, fill out Form 4506-A and mail it to the IRS to request a physical copy.
Step 3: Gather Necessary Shareholder Information
To complete Form 2553, you’ll need specific details on every shareholder in your corporation. This includes complete legal names, addresses, date of incorporation, social security numbers or employer identification numbers, and ownership percentages.
Step 4: Fill Out Section I – Election Information
Section I asks for your corporation’s identifying details, the election you are making, and the effective date of the election. Note if you are filing Form 2553 late you must provide reasonable justification.
Step 5: Complete Section II – Tax Year and Shareholder Data
In Section II, provide your tax year-end date and the full list of shareholders with all required information as described above. Double check accuracy here as errors could invalidate your S corp status. It’s essential when you’re filing to avoid any potential setbacks.
Step 6: Sign and Date the Completed Form
An authorized officer of your corporation must sign and date Form 2553 for it to carry legal weight. Include the signer’s official officer title, such as CEO, President, Secretary, etc.
Step 7: Include any Required Attachments
If applicable, attach documents like shareholder resolutions/consents, late filing election reasonable cause explanation, etc. to Form 2553.
Step 8: Submit the completed Form 2553 to the IRS
You can submit the form by fax or postal mail
- Fax to (1-877-477-0572)
- Mail to: Internal Revenue Service
PO Box 9941
Ogden, UT 84409
Step 9: Maintain Copies in Your Records
Keep completed Form 2553 on file along with any supporting documents for at least 4 years. This covers you in case of an audit.
With our guide, electing S corp status doesn’t have to be difficult. Still, working with a knowledgeable tax professional can help avoid costly mistakes. More filing tips below!
Additional tips for file IRS Form 2553
Following best practices when submitting Form 2553 ensures quick, accurate processing of your S corporation election:
- Read all instructions thoroughly before completing Form 2553 to catch important details
- Double and triple check Form 2553 for errors before signing and sending
- Reach out to a tax advisor for guidance if you have any questions
- File as early in the tax year as possible to maximize tax savings
With attention to detail from the start, you’ll seamlessly elevate to S corporation status in no time!
Additional Details on the S Corporation Election
Beyond submitting Form 2553 itself, note the following key points about electing S corporation status:
- The election must be made collectively by ALL shareholders in the corporation
- If filing late, Form 2553 must be submitted within 2 months and 15 days from the beginning of the intended tax year
- S corp status remains in effect year after year until formally revoked
In summary, shareholder consent and timeliness are imperative for gaining S corporation classification per IRS guidelines.
Help filing tax form 2553
The powerful perks of S corporation tax status make Form 2553 well worth prioritizing if your business is eligible. From negligible paperwork to flexible operations to unlimited tax savings – what’s not to love?
We encourage reviewing this guide as needed when the time comes to file Form 2553 so you can hit the ground running. Identify all shareholders, collect their details, complete all sections accurately, include necessary attachments, and submit to the IRS on time.
While we aim for this article to be an accessible resource, there’s no replacement for one-on-one tax support when navigating major IRS filings. Tap into our S corp election expertise rather than losing sleep over DIY filing or call the IRS if you encounter issues.
Here at H&S Accounting & Tax Services, our customers rave about our uncomplicated, personalized approach to even the most complex tax situations, including the late election filing. We’re invested in every client’s success from start to finish – schedule a free consultation to experience the difference.
