Form 2553 Instructions How to File IRS Form 2553 TRUiC

For existing businesses, the deadline is two months and 15 days after the start of the tax year. New businesses can file at any time before the tax year begins. Eligible entities must also maintain an acceptable stock structure. This ensures equal rights and distributions among shareholders.

In this system, the profits or losses of the business are not taxed at the business level. Instead, they pass through to the owners’ personal tax returns and are taxed at each owners’ personal income tax rate. If a single member limited liability company (LLC) owns the corporation’s stock, and the LLC is treated as a disregarded entity for federal income tax purposes, enter the owner’s name and address. For small business corporations, this form represents a strategic decision.

Item N: Shareholder’s tax year ending date

For details and exceptions, see When To Make the Election and Relief for Late Elections, earlier.. If the corporation (entity) hasn’t received its EIN by the time the return is due, enter “Applied For” and the date the EIN was applied in the space for the EIN. For more details, see the Instructions for Form SS-4. The income of an S corporation generally is taxed to the shareholders of the corporation rather than to the corporation itself.

Item E. Effective Date of Election

When box Q1 is checked, it will generally take an additional 90 days for the Form 2553 to be accepted. Businesses avoid double taxation by electing form 2553 S corporation status. Unlike C corporations, S corporations don’t face corporate-level taxes.

The requirements a corporation must meet to become an S corporation are extensive. Here’s an overview of the criteria your business must meet before you can File Form 2553. However, in order for one’s business to be treated as an S corporation, the business must communicate this desire to the IRS via an election and the IRS must approve this election. If your tax year isn’t the calendar year, you have 2 months and 15 days after your tax year to make an election.

Part II: Selection of fiscal tax year

It also requires knowing where to file or fax the form, and how to confirm if it was approved. However, this is not tax advice nor is this legal advice. Be sure to talk with your attorney or CPA to make sure that S corporation election is the right decision for you. IRS Notice 264 lists the reasons your S corporation election was denied.

Does Form 2553 Need to Be Filed Every Year?

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 during that prior tax year. A parent S corporation can elect to treat an eligible wholly owned subsidiary as a qualified subchapter S subsidiary. If the election is made, the subsidiary’s assets, liabilities, and items of income, deduction, and credit generally are treated as those of the parent. For details, see Form 8869, Qualified Subchapter S Subsidiary Election.

Against this savings, you have to balance the time and costs of running payroll and tax withholding. To learn more about what this will cost, get a free tax consultation. To elect to become an S corp, file Form 2553 with the IRS.

• The IRS can only accept the S corporation election if your business meets the requirements or if Form 2553 is completed correctly.
• A corporation or other entity eligible to elect to be treated as a corporation may elect to be an S corporation only if it meets all the following tests.
• If the Post Office doesn’t deliver to the street address and the corporation (entity) has a P.O.
• Shareholders of S corporations report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates.
• Now that you know how to fill out Form 2553, keep in mind that a properly filed form must be sent in no later than 75 days from the start of business for a new company.
• This section also requires details about the desired effective date for the election.

Enter the number of shares owned as of the election date, and the date or dates the stock was acquired. The statement’s due date is the sixteenth day of the third month of the tax year, provided the revocation is effective from the tax year’s first day. You’ll receive Notice 261 if the IRS approves your election or Notice 264 if Form 2553 is denied. The IRS needs approximately two months to review the form and inform a business of its decision.

• Verification helps in reducing chances of IRS processing setbacks.
• If you use the calendar year as your tax year, the deadline to submit Form 2553 is March 15.
• The final part of the journey involves understanding the changes in tax responsibilities and benefits that come with S-corp status.
• The Business must switch to a tax year ending on December 31, an ownership tax year, and elect a Section 444 tax year, to make the election.
• Because the corporation had a prior tax year, it can make the election at any time during that prior tax year.

Enter the number of shares or percentage ownership and dates acquired for each shareholder in box L. If you have more than 100 shareholders listed in Section J and wish to treat family members as one shareholder, check box G. If this section does not apply, leave this section blank.