IRS S Corporation Election Form: Everything You Need to Know
The IRS S corporation election form refers to the form that businesses are required to file when they are electing S corporation status.3 min read
The IRS S corporation election form refers to the form that businesses are required to file when they are electing S corporation status. An S corporation is a hybrid business entity that provides the liability protection of a regular corporation while allowing its income to pass through to its shareholders' personal tax returns. In order to attain S corp status, businesses must meet certain eligibility requirements and provide the required information in the S corp election form.
What Is an S Corporation?
Also known as a Subchapter S corporation, an S corporation refers to a corporation that elects “small business” status. It enables its shareholders to obtain the limited liability protection of a corporation but pay taxes at individual rates. To become an S corporation, your company must meet the following eligibility requirements:
- Must be a domestic company with no foreign investors
- Must have 100 or less shareholders
- Must have no more than one class of stock
- Must adopt a taxable year ending December 31
To file S corporation election, you must complete and submit IRS Form 2553 to officially declare your company as an S corporation. It is important to know that some states do not recognize Form 2553 as a valid election for state-tax purposes. As such, you may be required to file with the revenue department of your state in order to meet state legal requirements and avail of S corp benefitsat that level. If you are eligible for S corporation election, all you need to do is file the form. Your election will be effective upon approval by the IRS.
How to File an S Corp Election
If your company is not a corporation, you must incorporate it before you apply for S corporation status. To incorporate your company, you are required to draft Articles of Incorporationand bylaws, as well as complete certain legal documents, which can vary from one state to another.
After verifying that your corporation is eligible for S corp election, you can proceed to file IRS Form 2553. Form 2553, or Election by a Small Business Corporation, serves to provide the IRS with detailed information on the company that is electing S corporation status, including its eligibility for election. You are required to provide the following information when filing Form 2553:
- Name and address of your company
- Employer Identification Number (EIN) of your company
- State where your company is incorporated
- Date of incorporation
- Whether the name or address of your company has changed after filing S corp election
- Tax year in which the election will be effective
- Whether your company has over 100 shareholders
- Name, phone number, and address of a legal representative or corporate officer who can be contacted if more information is required
- Information on each shareholder, including name, consent for S corp election, number of shares owned, share acquisition date, tax year, and signature
- “Reasonable cause” for late filing, if applicable
- Answers to questions about the tax year of your corporation
- Information required for Qualified S Trust Elections
- Information regarding Late Corporate Classification Election Representations
You can complete and print out your Form 2553 online at the IRS website and then send it to the IRS. You can submit your form via postal mail or fax. Your application will be processed within 60 days, or 90 days if you check box Q1.
When to File S Corp Election
You must file Form 2553 by the 16th day of the third month of the taxable year of your corporation or the 15th day of the second month of a taxable year if the taxable year does not exceed two and a half months. For a business that is just starting out, this refers to the first year of business.
If your company starts on January 7, you are required to file S corporation election by March 15. The form can also be submitted at any time within the taxable year that precedes the year in which the election will be effective. You are not required to pay any fee when filing S corp election.
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