IRS Form 2553: What Is It?

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Let’s go get justice, together. For more detailed information about the requirements to make an S corp election, you can check out the IRS Form 2553 instructions. Conversely, if we cannot file the tax returns in a timely manner, we usually have to paper-file the tax returns along with Form 2553. This is the old school way and there are times it is the only way. Contact us today to see how indinero can help you make the most of a S corp election or to discuss our range of services. Chasing supposed tax advantages can come back to bite you if you haven’t consulted with corporate tax expert.

These include banks or thrift institutions that use the reserve method of accounting for bad debts, domestic and international sales corporations, and some insurance companies subject to tax. In this article, we delve into the details of Form 2553, exploring its purpose, eligibility requirements, instructions for filing, and how it can benefit your business. Whether you’re a C corporation or an LLC considering filing as an S-corporation, here is all the information you need to make an informed decision and maximize your tax savings. Upon determining that a corporation is eligible to operate as an S corporation, the owners must then complete Form 2553 and file it with the IRS.

S Corporation advantages for C Corporations

A corporation can file Form 2553 after the due date and still receive IRS approval to make the election retroactive to the beginning of the corporation’s tax year. You should establish your business entity in the state where the company will conduct the bulk of its business before you make the election. That’s right—you could potentially file a late S corp election for the year 2021 in 2023 and have it accepted retroactively. Although, in a case like that, you’d benefit from having an accountant experienced with late S corp elections to help guide you through the process. When you elect S corp status, your company is treated as an S corporation.

The owners of a new corporation must file Form 2553 within 75 days of the date the business was incorporated. In order to file late, a corporation may have to show that it had reasonable cause for the delayed filing. This term relates to the specific circumstances or facts that led to the forms being filed past the deadline.

Can Form 2553 Be E-Filed?

Part III goes over information about Qualified Subchapter S Trust (QSST). Most small businesses do not need to fill out this portion of the form. You only need to fill out Part II if you checked box 2 https://kelleysbookkeeping.com/similarities-differences-between-accounting/ or box 4 on line F in Part I. If you plan on filing Form 2553, you need to know what information to include on your form. Corporations (C Corps) and LLCs can use Form 2553 to elect S Corp tax status.

Business entities must request both retroactive classification as corporations and retroactive election as S corporations under this procedure. The business entity must prepare Form 8832, including Part II, and it must also prepare Form 2553, including the reasonable cause statement in section H of Part I and the required representations found in Part IV. Sometimes the single-member limited liability company doesn’t elect to be treated as a corporation and doesn’t elect to be treated as an S corporation within the prescribed time frames. The IRS has developed procedures that permit such taxpayers to retroactively file both elections.

Filing form 2553 late

If this change qualifies as a ruling request (Form 1128, Part III), file Form 1128 separately. If filing Form 1128, enter “Form 1128” on the dotted line to the left of the entry space for item E. Generally, send the original election (no photocopies) or fax it to the Internal Revenue Service Center listed below.

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. Until you receive approval from the IRS, your corporation will not be eligible to file an S-Corp tax return. Once a business becomes an S-Corp, it will be referred to as a “pass-through” taxation entity. Income, deductions, credits, and losses can then be passed on to the owners, instead of being taxed at the corporate level.

File

As an S Corporation, the corporation is considered a pass-through entity. The business’s profits and losses flow through to its shareholders’ personal tax returns and are taxed (according to their shares of ownership) at the applicable individual tax rates. Because the business does not pay taxes at the corporate rate, Bookkeeping Services Examples it avoids the “double taxation” that applies to corporations under their default tax treatment. Owners (shareholders) that are employees of the C Corporation only pay self-employment tax on the wages or salaries they receive from the company. Dividend income is not subject to Social Security and Medicare taxes.