How to Fill Out Form 2553 Complete Guide by a CPA
An LLC owner may be able to pay less in self-employment taxes by filing as an S corp. Form 2553 is an IRS tax form used by a corporation to make an election with the IRS for S corporation status. This election allows the corporation to avoid paying double taxation on corporate income.
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In addition to the aforementioned criteria, eligible entities for S Corporation election include domestic corporations or other organizations eligible to be treated as corporations. For a corporation to qualify for S Corporation election, it must only have one class of stock. This condition is in place to ensure equal distribution of profits, losses, and dividends among all shareholders. Conversely, corporations with multiple classes of stock are ineligible for the S Corporation election.
Part I: Election Information
Conversely, to revoke the S Corp election, consent from holders of more than 50% of the corporation’s shares is required. The eligibility criteria for S Corporation election require all shareholders to be U.S. citizens or residents. However, certain entities, such as trusts and estates, can also act as shareholders in an S Corporation. It’s essential to verify that all shareholders fall within the acceptable criteria before proceeding with Form 2553. The content provided on this website is for general informational purposes only and should not be construed as legal, tax, or professional advice.
Entity Classification Election
Some states recognize the federal S corporation election automatically, while others require a separate state election. It’s important to consult with a tax professional or your state’s tax authority for specific requirements. An LLC can choose to file Form 2553 to elect S corporation status if it meets the eligibility requirements. However, an entity that is already treated as a corporation and meets the tests for S corporation status, does not need to file Form 8832, Entity Classification Election.
Their personal assets (like homes, vehicles, and bank accounts) are protected in the event of a lawsuit and cannot be used to pay off the debts or liabilities incurred by the S-Corporation. If you’re wondering which form of taxation is better for your LLC, contact an accountant. The IRS may request additional documents, such as articles of incorporation, bylaws, or shareholder agreements, to verify eligibility and compliance. Do note, however, that S corporations are also taxed differently at the state level.
- An S corporation is distinct from a C corporation primarily in its tax treatment.
- 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.
- Enter the name and address of each shareholder or former shareholder required to consent to the election.
- For small business owners of LLCs and corporations out there, you have some flexibility when it comes to your tax classification.
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Visualize the way your money moves, and move your business like an expert. If you are planning to start a small business, understand different types of startup expenses, which will help you launch successfully. If this notice is received, review the cause of the denial and contact the IRS to see if it can be reversed.
The information provided on this website does not, and is not intended to, constitute legal, tax or accounting advice or recommendations. All information prepared on this site is for informational purposes only, and should not be relied on for legal, tax or accounting advice. You should consult your own legal, tax or accounting advisors before engaging in any transaction. The content on this website is provided “as is;” no representations are made that the content is error-free.
How much does it cost to file Form 2553?
You need to complete and submit the form to the IRS, which includes details on your business and tax election choices. Ensure your corporation meets the eligibility criteria under IRS rules. This means the corporation must be a domestic entity, have allowable shareholders (such as individuals or certain trusts), and have no more than 100 shareholders. Your entity must meet certain conditions to qualify for S Corporation status. Your business must be a domestic corporation with only allowable shareholders, which include individuals, estates, and certain trusts.
- We ask for the information on this form to carry out the Internal Revenue laws of the United States.
- This is because small businesses don’t usually generate the amount of profit required to make the S corp tax designation beneficial.
- Meeting the filing deadline for Form 2553 is critical to ensure that your election is valid.
- LLC owners typically have a different reason for filing a Form 2553 S-corp election.
Owners of S corps are considered employees of their company and they can save thousands of dollars on self-employment taxes as a result. Whether or not an LLC should elect S corp status depends on how much profit the business is going to earn. Most small business owners will not complete any of the information in this part.
Additionally, the instructions below are for an LLC electing to be taxed as an S-Corp (not a Corporation electing to be taxed as an S-Corp). Under the IRS rules, an S-Corporation can only have eligible owners/shareholders. You have to file within 2 months and 15 days from the date of your LLC’s date of approval in order for the changes to take effect in its first tax year. With this “income splitting”, you only have to pay the 15.3% self-employment tax on your salary.
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. For each shareholder, you provide their name, address, signature, number of shares (or percentage of ownership) and social security number. 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.
Ensure all entries match your business records to avoid complications. Partnerships are quite different from S corporations in terms of structure and operation. In a standard partnership, income distribution is primarily based on the terms laid out in the partnership agreement, whereas S corporations distribute profits based on ownership percentage. Partnerships may offer Irs Form 2553 Instructions more flexibility in managing business operations and distributions.