Some businesses may be eligible for a special business tax designation called S corporation (short for small business corporation or subchapter S corporation). This is a noteworthy designation because it can help reduce your corporate taxes. To become an S corporation (or S corp), you're going to need to know all about IRS Form 2553.
When you incorporate your business, there are several kinds of structures that you might form. We'll focus on the C corporation (C corp) and limited liability company (LLC) for now. If you want to elect to file as an S corporation and your business is an LLC, for example, you may file IRS form 2553 (also known as tax form 2553). After successfully filing this form, the IRS (Internal Revenue Service) will view your business as an S corporation for tax purposes.
An S Corporation files form 1120S come tax season, but is not taxed on its profit (or loss). It avoids what's called double taxation.
Essentially, S corporations don't pay income taxes, rather the business owners or shareholders do on their income tax returns. Comparatively, C corporations pay a corporate tax with a tax rate of 21% in addition to what shareholders pay on their personal tax return.
S corporations are also taxed differently at the state level meaning an S corporation designation isn't a surefire way to reduce your tax bill.
Further reading: The Complete Guide to S Corporation Taxes
To be eligible to file form 2553 for an S corporation election, you must first be a C corporation, or deemed as such in the case of the LLC structure. Your company must also satisfy the following requirements:
Start by downloading a copy of form 2553 from IRS.gov. There are four parts to form 2553 and here's the instructions for each one.
This is where you provide basic information about your company. Prepare the following:
Forms must be filed by two months and 15 days after your tax year. For businesses whose tax year is the calendar year, this means you must file by March 15. If you're making a late election, you will also have an opportunity to provide an explanation as to why on page 1.
On page 2, you provide information on your shareholders. For each shareholder, you provide their name, address, signature, number of shares (or percentage of ownership) and social security number.
Your fiscal year (or tax year) is the 12-month period that you use for financial reporting. Most businesses will use the calendar year (January to December) as their fiscal year.
In this section, you are asked some simple questions about whether you are changing or retaining your tax year. You may have a non-calendar tax year if you're filing based on your natural business year or if you're making section 444 tax payments.
Further reading: Fiscal Year Explained: How To Choose One For Your Business
The name of this section can be daunting, but it's only relevant for trusts applying for S corporation status. If you're a trust applying for S corp status, list the income beneficiary's name, address, and social security number, and the trust's name, address, and employer identification number.
This section is for any businesses filing their application past the IRS deadline. As a reminder, to qualify for S corporation status in the same year you're applying for it, your deadline to file is two months and 15 days after the beginning of the tax year.
For example, if you want 2023 to be your first tax year as an S corp and your tax year begins on January 1, you must file form 2553 by March 15, 2023.
You cannot file form 2553 online or electronically. The original election (i.e. no photocopies) of the completed form 2553 must be mailed or faxed to an Internal Revenue Service Center.
There are two Department of the Treasury Internal Revenue Service Center locations. Which location you send it to depends on your corporation's principal business, office, or agency location. You can find the fax number and mailing address that you submit your form 2553 to on page 3 of the form 2553 instructions PDF. We've provided them below.
There is no single deadline to submit form 2553. A completed form 2553 can be submitted any time of the year. However, when you file affects when the IRS recognizes you as an S corporation.
To become an S corp in the next tax year, you must file form 2553 prior to two months and fifteen days after the start of the current tax year.
Most businesses use the calendar year as their tax year meaning they close their books on December 31. For these businesses, if they want to become an S corp in 2023, the due date is March 15, 2023.
It's possible to file form 2553 after the deadline, however you won't be granted S corp status until the following tax year. So if your deadline for S corp election in 2023 is March 15 and you file form 2553 on March 16, 2023, you will not be granted S corp status until 2024.
Under certain conditions, the IRS may grant you S corporation status for the current tax year in the case of a late filing.
You are eligible to file a late election if:
If you meet these requirements, you must write "FILED PURSUANT TO REV. PROC. 2013-30" at the top of form 2553.
Typically, you will get a verdict on your form 2553 application within 60 days of submitting it to the IRS. If you have not heard back in that timeframe, reach out to the IRS directly. You can call the IRS at (800) 829-4933 to check the status of your application.
Once approved, you're considered an S corporation for federal tax purposes and will receive a letter indicating acceptance. But you will need to keep a copy of the completed form 2553. It's required for when you file your taxes.
If you need to replace a lost form 2553, you will have to contact the IRS to request a new copy to file taxes as an S corp. Call the IRS Business and Specialty Tax line at 1-800-829-4933. You will need to confirm your identity by providing your corporation's name and address, your EIN, the business's contact details, and your name and role within the company.
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