Today, there are around 5 million S corporations in the US. This is a business structure where the company passes its income, losses, deductions, and credits to the shareholders, which allows them to avoid the double taxation that usually comes with C corporations.
Does this sound appealing, and do you want to elect your company to be taxed as an S corp? Then you’ll have to use IRS Form 2553.
Understandably, tax forms can be confusing, so we’re here to help. Keep reading to find out how to fill out Form 2553.
What’s Form 2553?
Form 2553 has the title “Election by a Small Business Corporation.” More specifically, limited liability companies (LLCs) and corporations can use this form to get the S-corp tax election.
This gives the company pass-through taxation, which allows you to avoid double taxation for the business and shareholders. In particular, there are tax benefits for smaller companies where owners prefer income to be taxed at the individual level. This can help them get significant tax savings, especially on self-employment taxes.
If you’re interested in starting your own company, then use our free business registration service. You can create an LLC and then get the S-corp tax election if you wish.
Who Qualifies?
While the form is for LLCs and corporations, not every business will qualify for S-corporation status. The main eligibility requirements are that the business must:
- Be a domestic LLC or corporation
- Have no more than 100 shareholders (they must be US citizens or residents)
- Issue only one class of stock
The Deadline
You must file Form 2553 within two months and 15 days from the start of the tax year in which you want the S-corporation status to take effect. If you’ve missed the deadline, then you can apply late (more on this later).
How to Fill Out Form 2553
First, download the form from the IRS’s website. You can also get it with tax software if you have it.
Now, let’s go through each part in detail.
Part I: Election Information (First Part)
This is where you’ll provide basic details about your company. But first, put down your name and dress, including the number, street, city/town, state/province, country, and zip/foreign postal code.
Next, go through each line:
- Line A – Employer identification number (EIN): Enter your company’s EIN. If you don’t have one, apply for it using Form SS-4.
- Line B – Date incorporated: This is the date when your company was incorporated.
- Line C – State of incorporation: Indicate the state in which your company is incorporated.
- Line D: Check the “name” or “address” box if your business has changed either since applying for its EIN.
- Line E: Put the date when you want the S corporation election to take effect. Typically, it must be made within two months and 15 days of the start of the tax year.
- Line F: Indicate the tax year this applies to.
- Line G: Check this box if your company has over 100 shareholders, but if you group them together as one shareholder per family, the number goes below 100.
- Line H: Write down the name and title of someone the IRS can call for information, as well as their phone number.
- Line I: The lines here allow you to explain why you made the election late and what you’ve done to rectify the situation.
At the end of this page, you can sign and date the form, as well as put down your title.
Part I: Election Information (Second Part)
Part I isn’t done yet, as the next page has an additional chart for election information with the following boxes:
- Line J: Name and address of each (former) shareholder required to consent to the election
- Line K – Shareholder’s Consent Statement: Each shareholder will sign and date the form. If the shareholder is an entity, the entity’s authorized representative must sign.
- Line L: Stock owned or percentage of ownership. You’ll put down the number of shares or percentage of ownership, plus the date(s) acquired.
- Line M: Social security number (SSN) or employer identification number (EIN)
- Line N: Shareholder’s tax year ends (month and day)
Part II: Selection of Fiscal Tax Year
This section is optional; you’ll only fill it out if you want to adopt a fiscal year that’s not the calendar year. This includes those who have checked box 2 or 4 in Part I, line F.
Lines O through R appear in this part; start off with O, and then complete line P, Q, or R accordingly. For example, if you’re using the automatic approval provisions to request a natural business year, then you’ll complete line P.
Just looking at the section can make you dizzy. It’s very complicated, so it’s best if you speak with a tax professional and have them help in this section.
Part III: Qualified Subchapter S Trust (QSST) Election Under Section 1361(d)(2)
If you have a trust that’ll be treated as a shareholder, then the trust’s beneficiary has to complete this section if electing QSST status. If you’re making more than one QSST election, there are additional pages to utilize.
In this section, you’ll have to fill out the:
- Income beneficiary’s name and address
- Social security number
- Trust’s name and address
- Employer identification number
- Date on which stock of the corporation was transferred to the trust
The income beneficiary or legal representative will sign and date this section.
Part IV: Late Corporate Classification Election Representations
If you’re filing late, then you’ll have to complete this section, as you can request relief for a late election. You’ll have to explain why you were late and confirm that the corporation and shareholders have consistently treated the entity as an S corporation.
How to Submit Form 2553
Now that you’ve read through the Form 2553 instructions, the next step is to learn how to submit it. Do note that you should only do so after reviewing the form and ensuring that all shareholders have signed and consented to the election.
You have two options for submitting your completed form: mail or fax. Where to fax 2553 and send it will depend on where your corporation’s principal business, office, or agency is located.
The first address and number is this:
Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999
855-887-7734
The associated states with that information are:
Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin
The second address and number is this:
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201
855-214-7520
The associated states with that information are:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming
You should receive confirmation from the IRS after submitting. If you don’t hear back within 60 days, contact the IRS to double-check.
Follow These Form 2553 Instructions
Staring at a form is never fun, but sometimes, they just have to be done. Now that you know how to fill out Form 2553, hopefully, it should be a smoother experience if you want the S-corp tax election for your company.
Depending on your situation though, Form 2553 may be more complicated. In that case, don’t hesitate to consult with a tax professional for peace of mind.
Sign up with Business Anywhere if you’d like to set up a company. In addition to our free business registration service, we can also be your registered agent and provide you with a virtual mailbox.
