IRS S Corp Election Form: Everything You Need to Know
By filing an IRS S-Corp election form, also known as Form 2553, your corporation will experience tax-related benefits. 3 min read updated on February 01, 2023
By filing an IRS S-Corp election form, also known as Form 2553, your corporation will experience tax-related benefits.
Forming an S-Corporation
When filing taxes, corporations are considered to be C-Corporations unless additional steps are taken. This means that unless they are classified as an S-corporation, they will need to pay tax on all net taxable income. In comparison, S-Corporations pay income tax based on the personal tax rates of associated shareholders.
This is the greatest benefit associated with S-Corporation, as your company's net income would only be taxed once at the shareholder level. This differs from C-Corporations which are often taxed twice — once at the corporate level and then again at the shareholder level (once dividends have been paid out). In addition, S-Corporations only need to file taxes on an annual basis, instead of quarterly.
What is Form 2553?
If a corporation does seek S-corporation status, it must file Form 2553 with the Internal Revenue Service. The IRS will then confirm the corporation's election via a letter. This means that by completing Form 2553, a company can transition from a C-Corporation to an S-Corporation. In order to complete this form, all shareholders will be required to sign.
If your company is considering this step, please be aware of the following:
- Before submitting Form 2553, your business must be incorporated. At that point, you can verify whether or not your corporation is eligible to become an S-Corporation.
- The form can be downloaded here and should be submitted to the IRS. You can file either by fax or mail.
- There are no fees for filing Form 2553.
- As stated by the IRS, this form typically takes around 16 hours to complete.
- Once filed, the turnaround time will be within 60 minutes. However, if you select box Q1, an additional 90 days will be added.
- If you do not hear back from the IRS, follow up with the Service Center where the form was filed.
When to Submit Form 2553?
When you file will depend on whether or not your corporation is newly incorporated.
The deadline is:
- The 16th day of the third month of the corporation's tax year.
- If the tax year is 2.5 months or less, a corporation must file before the 15th day of the second month.
If your incorporation is filed on or after January 1 of your current tax year, then you can submit the S-Corporation election form at any time during the tax year. The exceptions are as follows:
- The filing must be accepted no more than 75 days after your corporation has issued stock to shareholders, acquired assets, or conducted business as a corporation.
- If you do miss this deadline, the S-Corporation status will not take effect until the following calendar year.
Here are some examples to better understand the filing process and associated deadlines:
- Let's say your corporation was incorporated on July 1. That means you have until October 16 to file the election form.
- If your business was incorporated on November 20, your first tax year would be less than 2.5 months. This means you must file by January 15 the following year in order for your S-Corporation status to be valid within your first year of corporate operation.
- If you have already been in business as a C-Corporation for several years, you will have until December 31 of the current year to file. This will allow you to convert your business into an S-Corporation for the following tax year.
Procedures for Late Elections for S-Corporation Status
As mentioned, you can still submit Form 2553 after the due date. This will allow your business to be considered an S-Corporation the following tax year.
The only reason why a corporation would fail is that it did not file Form 2553 in time. When this occurs, the corporation must then include a statement as to why it missed the deadline. This statement would include either a reasonable cause or accidental failure to file.
In this case, the following must be written on the top of the form: "FILED PURSUANT TO REV. PROC 2013-30." Both the form and statement sheet will then need to be signed by every shareholder. This is something that can be addressed with your attorney.
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