IRS Help – Tax Form 2553 S Corporation

There are several different types of business entities you can elect, and each of them is taxed differently by the IRS. An S corporation is a business entity that offers its own unique tax benefits for eligible businesses. If you want to make an S corporation election for your company, you’ll have to fill out IRS Form 2553. Here’s everything you need to know if you need IRS Form 2553 help.

What is IRS Form 2553?

IRS Form 2553 is the form for Election by a Small Business Corporation. The corporation must submit the form once it has been signed by all shareholders. In most community property states, IRS Form 2553 also has to be signed by the spouse of the shareholder. Once the form has been submitted and accepted by the IRS, the business will be taxed as an S corporation.

What are the Benefits of Making an S Corp Election?

One of the main tax benefits that an S corporation election has is that it’s taxed as a pass-through entity. The S Corporation’s net taxable income is taxed on the shareholders and not on the corporation itself. The income is reflected on the shareholders’ personal tax returns and taxed at each shareholder’s individual tax rate.

Furthermore, an S corporation’s net income only needs to be taxed once. C corporations, on the other hand, may have to be taxed twice at the corporate and shareholder level. S corporations can also write off startup losses.

Is it better for your business to form an S corporation? It’s tough to say—every business is different. Consult with a business tax professional if you’re trying to figure out the best election for your company.

Who Qualifies to Make an S-Corp Election?

In order to qualify as an S Corporation, the business must meet the following requirements:

  1. Must be a domestic corporation
  2. Must have shareholders who are all U.S. citizens or residents
  3. May not have more than 100 shareholders
  4. Must only have allowable shareholders, which are individuals, estates, certain exempt organizations, and certain trusts
  5. Must have only one class of stock

Additionally, the business must have or must transition to one of the following tax years:

  • A tax year ending December 31
  • A natural business year
  • An ownership tax year
  • A tax year elected under section 44
  • A 52-53-week tax year ending with reference to a year listed above

There are some businesses that are now eligible to make an S corporation election. These businesses include:

  • A bank or thrift institution that uses a reserve accounting method for bad debts (under section 585)
  • An insurance company subject to tax under subchapter L of the Code
  • A corporation that has elected to be treated as a possessions corporation under section 936
  • A domestic international sales corporation (DISC)

How to Fill Out Form 2553

If your company is eligible to become an S corporation and you’ve decided that you want to elect, then you’ll need to file Form 2553. Here you can read the instructions for filing Form 2553, but we’ll give you a quick summary of all four parts of the form.

Part I

Part I of Form 2553 asks for basic information about your company, including:

  • Your company’s full name
  • Your company’s address
  • Your company’s employer identification number
  • The state in which your business was incorporated/registered
  • The date that your business was incorporated/registered

In Item E, enter the date in which you want your S corp election to take effect. You must file Form 2553 no later than two months and fifteen days after the effective date of the S corp election. Be sure your election date corresponds with one of the eligible S corp tax years that were previously listed. Don’t hesitate to consult a tax professional if you need assistance.

Lastly, you’ll need each shareholder’s personal information and ownership percentage. There’s only space for seven shareholders, so if you have more, just attach an extra sheet with the same columns.

The company president must sign at the end of Part I.

Part II

If your company’s tax year doesn’t end on December 31, then you’ll need to give justification to the IRS on why you’re going to use a non-calendar year. Here are the options you can select:

  • Natural business year: This is for seasonal businesses that have an annual slow period.
  • Ownership tax year: This is for businesses that follow a fiscal year that’s preferred by the majority of shareholders.
  • Business purpose tax year: This is for businesses that have other financial or logistical reasons for using a non-calendar year.
  • Section 444 tax year: Section 444 of the tax code allows businesses to choose a fiscal year ending on a specific date so long as the business makes periodic tax payments throughout the year.

Companies that select “business purpose” will have to pay a $5,800 fee.

Part III

If there’s a Qualified Subchapter S Trust that wants to hold stock in your S corp, then the trust must fill out this section. Otherwise, you can skip it.

Part IV

You can skip Part IV unless your company is filing IRS Form 2553 late.

Form 2553 Due Date

As mentioned above, there are a variety of deadlines on when Form 2553 must be filed, depending on which calendar year you choose and which date you want your election to take effect.

You might be able to file your Form 2553 past the due date so long as the corporation had reasonable cause for missing the deadline. Reasonable cause may include financial or organizational factors that were in flux at the time the company was trying to file. A dedicated tax professional can help your company seek relief for a late S corporation election.