Irs Form 2553 Instructions 7

How to File Form 2553 Online for S Corporation Election

This means an S corporation designation isn’t always a surefire way to reduce your tax bill. Learn how to build, read, and use financial statements for your business so you can make more informed decisions. It must be sent via mail or fax to the IRS according to the instructions provided on the form. After submitting Form 2553, the IRS will review your election and notify you usually within 60 days whether your election to be treated as an S corporation has been accepted.

Participation from all shareholders is fundamental, as every individual’s consent impacts the legitimacy of the election. Without unanimous agreement among shareholders, the election cannot proceed. This unity is crucial for complying with the IRS requirements and securing the business’s future tax structure. Mail the completed form to the appropriate address provided by the IRS, based on your corporation’s location. It’s advisable to send it via certified mail to confirm receipt, aiding any disputes that may arise.

Instructions for Form 2553 (12/

S corporations are capped at 100 shareholders and must only issue one class of stock. In contrast, a C corporation can have an unlimited number of shareholders and stock classes. These attributes make S corporations preferable for small to medium-sized enterprises seeking tax benefits and fewer restrictions on distribution of earnings. However, the restrictions on shareholders can limit funding opportunities compared to C corporations.

Form 2553: Essential Steps for Small Business Tax Election

S-Corporations are more closely watched by the IRS so make sure you are actually taking a reasonable salary and filing your federal and state taxes correctly. However, an LLC can also elect to be taxed as an S-Corporation with the IRS, and is a very common tax classification made by LLCs whose net income begins approaching $75,000 to $100,000 per year. When you own an LLC, your business tax rate is likely the same as your personal tax rate.

• After submitting Form 2553, the IRS will review your election and notify you usually within 60 days whether your election to be treated as an S corporation has been accepted.
• Choosing to have your business taxed as an S Corporation can open the door to valuable tax benefits.
• The IRS provides a breakdown of which tax year to use for each state on its website.
• By properly completing and filing this form, these entities can benefit from the advantageous pass-through taxation provided by an S corporation election.

Dealing with Late S-Corp Election

As a general rule of thumb, it’s good to document how your time is spent in the business, and what the appropriate salary is for each of those activities. If you have a self-employed retirement account (like an SEP, simple IRA, solo 401(k), or Keoghs), the contributions you can make are based on the salary your S-Corporation pays you. Not only does making these retirement account contributions reduce your tax burden, they also help you maximize your retirement funds. Although you can save money with an S-Corporation, it’s important to understand the other side of the coin. And granted, the higher your company’s profits, the more you can save on self-employment tax.

Your extra money left over (called distributions) is not subject to self-employment tax. Once your LLC is taxed as an S-Corporation you become an “employee-owner” (also referred to as a “shareholder-owner”). Instead, you elect to have your already-formed entity taxed as an S-Corporation with the IRS. Again, unlike an LLC or a Corporation, which is a business entity created at the state-level, an S-Corporation is a tax entity selection made with the IRS. Just like an LLC and a C-Corporation, an S-Corporation offers personal liability protection to its owners.

Who May Elect

If you haven’t heard from the IRS after 60 days, you can contact them to inquire about the status of your application. If your business uses the calendar year as the tax year, your deadline would be March 15 of the same year. This section only applies to trusts applying for the S corporation tax designation. This section allows you to choose your tax year if you checked boxes (2) or (4) in Item F of Part I. You can either choose to retain your existing tax year or change it from or to the calendar year.

If you check the box under Item Q1 on the form, you will be charged a user fee of $5,800. For more detailed information on filing Form 2553, check out the IRS instructions. Under Election Information, fill in the corporation’s name and address, along with your EIN number and date and state of incorporation. An S corp is a tax designation for which an LLC or a corporation can elect.

Part 1 – Election Information (continued) page 2

Under Item E, provide an effective date for an election, which is based on the date your corporation first had shareholders, assets, or began doing business. If you are making an election for your first tax year in existence, you will usually enter the beginning date of a tax year that begins on a dateother than January 1. Most small businesses file taxes under the default LLC tax classification. This is because small businesses don’t usually generate the amount of profit required to make the S corp tax designation beneficial. Business owners should weigh the cost of maintaining these services against the fiscal tax advantage of electing the S corp classification.

The above information outlines the eligibility requirements for S Corporation election. Not every business will benefit from or qualify for S-corp status. Business owners must assess their company’s structure, tax situation, and long-term goals to determine if filing Form 2553 aligns with their objectives. To file Form 2553, a business must meet certain IRS criteria, including limitations on the number and type of shareholders and agreement from all shareholders. Businesses must also be domestic corporations or other entities eligible to be treated as corporations.

But if your business is generating a great deal of profit—profit you’d like to put in your pocket—then filing as an S-corp is the way to go. With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary. They may then withdraw any remaining profits from the business as a “distribution,” which isn’t subject to self-employment tax. Filing IRS Form 2553 might seem intimidating at first, but once you understand the purpose and process, it becomes a straightforward way to take control of how your business is taxed.

Form 2553 Instructions

Discover how our team of bookkeepers can help you make sound financial decisions. The Department of the Treasury Internal Revenue Service Center is situated in two locations. You can send the original copy of the form to the address that corresponds with the location of your corporation’s principal business, office, or agency. Under normal circumstances, Form 2553 must be filed within two months and 15 days from the beginning of the tax year for your business.

• This section discusses the criteria for late election relief and the process for applying.
• Navigating the complexities of Form 2553 can be challenging, especially if you’re considering switching your corporation to an S status for tax purposes.
• For some LLCs, the cost of hiring a payroll service and bookkeeper would outweigh the financial tax advantages of electing S corp tax classification.
• However, there are a number of rules that must be followed to maintain eligibility and avoid double taxation.
• You can apply for an S corp status when it better suits your business.
• It’s important to note that there is no single deadline for submitting this form.

How Long Does it Take for Form 2553 to Get Approved?

If the corporation (entity) changed its name or address after applying for its employer identification number, be sure to check the box in item D of Part I. A calendar year small business corporation has been filing Form 1120 as a C corporation but wishes to make an S election for its next tax year beginning January 1. The 2-month period ends February 28 (29 in leap years) and 15 days after that is March 15. Because the corporation had a prior tax year, it can make the election at any time Irs Form 2553 Instructions during that prior tax year.