Form 2553

This article covers the essential aspects of IRS Form 2553, including its purpose, eligibility requirements, filing procedures, and detailed instructions for completion.

IRS Form 2553, officially titled “Election by a Small Business Corporation,” is a crucial document for businesses seeking to be treated as an S Corporation for federal tax purposes. This form serves as the gateway for eligible corporations and limited liability companies (LLCs) to enjoy the benefits of pass-through taxation, potentially reducing their overall tax burden and simplifying their tax reporting obligations. By filing Form 2553, business entities can avoid the double taxation typically associated with C Corporations, where profits are taxed at both the corporate and individual shareholder levels. Instead, S Corporation status allows the company’s income, losses, deductions, and credits to flow through directly to the shareholders, who report these items on their personal tax returns. This election can have significant financial implications for small businesses and their owners, making it essential to understand the intricacies of Form 2553 and the S Corporation election process.

What is IRS Form 2553

What is IRS Form 2553?

IRS Form 2553 is the official document used by eligible domestic corporations and LLCs to elect S Corporation status for federal tax purposes. This election allows the business to be taxed as a pass-through entity, similar to a partnership or sole proprietorship, rather than as a separate taxable entity like a C Corporation. The form must be filed with the Internal Revenue Service (IRS) and requires information about the business entity, its shareholders, and the desired tax year.

Who Must File Form 2553?

Form 2553 must be filed by any eligible domestic corporation or LLC that wishes to be treated as an S Corporation for federal tax purposes. To be eligible, the entity must meet the following criteria:

  1. Be a domestic corporation or LLC treated as a corporation
  2. Have only allowable shareholders (individuals, certain trusts, and estates)
  3. Have no more than 100 shareholders
  4. Have only one class of stock
  5. Not be an ineligible corporation (such as certain financial institutions, insurance companies, and domestic international sales corporations)

Additionally, all shareholders must consent to the S Corporation election.

How to Fill out Form 2553?

Part I – Election Information:

  1. Enter the corporation’s name, address, and employer identification number (EIN) in the spaces provided at the top of the form.
  2. Complete items A through D:
    A. Enter the corporation’s EIN.
    B. Enter the date of incorporation.
    C. Enter the state of incorporation.
    D. Check the box if the corporation changed its name or address after applying for the EIN.
  3. Item E: Enter the effective date for the S corporation election.
  4. Item F: Select the tax year by checking the appropriate box (calendar year, fiscal year, or 52-53 week year).
  5. Item G: Check this box if treating family members as one shareholder results in no more than 100 shareholders.
  6. Item H: Provide the name, title, and telephone number of an officer or legal representative the IRS can contact.
  7. Item I: If filing late, provide an explanation for the delay and describe actions taken to correct the mistake.
  8. Item J: List all shareholders’ information, including names, addresses, social security numbers (or EINs), number of shares owned, and dates acquired. Each shareholder must sign and date the consent statement.

Part II – Selection of Fiscal Tax Year:

  1. Complete this part only if requesting a fiscal tax year.
  2. Item O: Check the appropriate box to indicate if the corporation is new, existing and retaining its tax year, or changing its tax year.
  3. Items P, Q, and R: Complete the applicable item based on the reason for the fiscal year selection (natural business year, ownership tax year, business purpose, or Section 444 election).

Part III – Qualified Subchapter S Trust (QSST) Election:

  1. Complete this part only if a trust is listed as a shareholder and is making a QSST election.

Part IV – Late Corporate Classification Election Representations:

  1. Complete this part only if making a late election and seeking relief for both the S corporation and entity classification elections.

Remember to have an officer of the corporation sign and date the form at the bottom of page 1.

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