Key Takeaways

  • The S Corp election form (IRS Form 2553) is used by eligible LLCs or corporations to elect S corporation tax status with the IRS.
  • To qualify, an LLC must meet specific IRS eligibility requirements, including shareholder limits and U.S. residency criteria.
  • Form 2553 must be filed within 75 days of formation or within the first 75 days of the tax year to apply the election for that year.
  • Filing late is possible under certain IRS late election relief provisions.
  • Choosing S corp taxation can offer self-employment tax savings, but it also adds administrative duties like running payroll and filing corporate returns.
  • Form 2553 requires detailed information about ownership, effective election date, and all shareholders’ signatures.
  • An attorney or CPA can help ensure timely filing and compliance with both IRS and state rules.

LLC S Corp Election Form

The LLC S Corp Election Form is used when an LLC wishes to be considered an S corporation for the purposes of paying taxes. This saves the owner of an LLC from having to pay self-employment tax on his share of the business because an S corporation owner does not pay this tax on his pass-through income or other distributions.

The process of converting your LLC to an S-corp for this purpose may be complicated but may be worth the effort. It can be done at the same time you file your tax return by filing the necessary documentation at that time. However, your election may not be in effect until the following year, so the current year's tax return should be done as usual. It also does not change the fact that your LLC is still, for all other purposes, an LLC.

Eligibility Requirements for Filing

Not every LLC or corporation qualifies to file the S corp election form. The IRS limits this option to businesses that meet these criteria:

  • Must be a domestic entity (formed in the United States).
  • Can have no more than 100 shareholders or members.
  • Shareholders must be individuals who are U.S. citizens or residents (certain trusts and estates may also qualify).
  • The business can issue only one class of stock or ownership interest.
  • All shareholders must consent to the S corp election in writing.
  • The company must not be an ineligible corporation, such as a bank, insurance company, or international sales corporation.

LLCs should verify eligibility before filing Form 2553, since noncompliance may result in rejection or revocation of S corp status.

Understanding IRS Form 2553

The S Corp election form is officially known as IRS Form 2553, “Election by a Small Business Corporation.” It allows an LLC or C corporation to choose to be taxed as an S corporation under Subchapter S of the Internal Revenue Code.For LLCs, this election doesn’t change the company’s legal structure—it only affects how the IRS taxes the business. Once approved, the LLC’s income, deductions, and credits flow through to its owners, who report them on their individual returns rather than facing corporate-level taxation.

To file Form 2553, the LLC must already have an Employer Identification Number (EIN) and meet all IRS requirements for S corporation status. The election must also be signed by all members of the LLC, confirming unanimous consent.

What's the Difference Between an S-Corp and an LLC?

S-corp, or S-corporation, is a short form of “Subchapter S Corporation.” It is a tax entity of its own, not just a legal entity designated by the state. Its classification is done with the IRS instead. In the case of using the designation of S-corp for tax purposes, it is used in addition to your LLC. LLCs and S-corporations are “pass-through” entities and do not have their profits subject to double taxation as a C-corporation would. All profits and losses are passed through to the owners, who report them on their own personal tax returns.

How is an LLC Taxed?

  • The income taxes paid by an LLC are based upon the company's members or owners.
  • Single-member LLCs are considered “disregarded entities” and are treated like a sole proprietorship, with all profits and losses reported by the single owner's tax return.
  • Multiple-member LLCs pay income taxes the same way as a partnership would pay, by dividing profits and losses by each member's share of ownership.

How to File the S Corp Election Form (Form 2553)

To elect S corporation status, an LLC must complete and submit Form 2553 to the IRS Service Center listed in the form’s instructions. The filing must occur:

  • Within 75 days of the business formation date, or
  • Within the first 75 days of the current tax year, if you want the election to take effect for that year.

The form requires details such as:

  1. The LLC’s name, EIN, and address.
  2. The date the election should take effect.
  3. The company’s fiscal year.
  4. Each owner’s name, Social Security number, and percentage of ownership.
  5. Signatures of all members consenting to the election.

LLCs can submit the form by mail or fax, and confirmation usually arrives within 60 days. Once accepted, the election remains in effect until revoked or terminated by the IRS.

Why use an S Corporation for Tax Purposes?

If your LLC is eligible for S corporation status, it can save you money on self-employment taxes. This covers social security and Medicare taxes, and it is reported on your personal tax return. This is possible because an S corporation divides your income into salary and distribution, or dividends. You effectively become an employee of the S corporation as well as the owner, and self-employment tax is only applied to the salary portion of your income. The only restriction to doing this is that you need to take a “reasonable” salary, or the IRS will see that you are trying to circumvent paying your fair share of taxes.

To take advantage of these tax savings, there are administrative tasks you must attend to:

  • You must have a payroll system, even if you are the only owner because you must pay yourself a salary.
  • You must file payroll returns, both federal and state, on a quarterly basis.
  • You need to do bookkeeping to maintain accurate records.
  • You need to file corporate tax returns; usually, this is done by a professional accountant.
  • If you have employees, you may need to pay for unemployment insurance on both state and federal levels, worker's compensation insurance, and unemployment insurance.

Filing Deadlines and Late Election Relief

The IRS enforces strict timelines for the S corp election form. To have S corp status apply for the current year, Form 2553 must be filed no later than:

  • Two months and 15 days (75 days) after the start of the tax year the election is to take effect, or
  • Any time during the year before the tax year the election will apply.

If an LLC misses this window, it may still qualify under the IRS Late Election Relief procedure (Rev. Proc. 2013-30). The company must demonstrate reasonable cause for late filing—such as misunderstanding the deadline—and show that it otherwise met all eligibility requirements.

Are There Disadvantages?

The costs of these items may offset any tax savings you may receive as a result of electing an S-corp status, so you need to run the calculations before making the choice. There are other disadvantages to choosing S-corp status as well:

  • S corporations have a higher risk of audit by the IRS, so you'll need to keep accurate records and make sure your salary is honestly a reasonable amount.
  • Your social security benefits are based on your salary, so if you pay yourself less, over time the amount of social security you ultimately receive upon retirement will be lower as well.
  • You may have a tougher time being approved for a mortgage if your salary is reduced to avoid paying self-employment taxes.
  • Your maximum contributions to a personal retirement account are based upon the salary you receive, so paying yourself less means less money in your retirement nest egg.

Be sure to consider all aspects of your business including long-term goals, as well as your personal goals when choosing an entity for your business. An attorney who is familiar with all forms of tax entity, as well as a professional CPA, can assist in your decision.

When to Revoke or Change Your Election

An LLC may later decide to revoke its S corporation election if it no longer meets eligibility requirements or finds that C corp taxation is more beneficial.To revoke, the business must file a written statement of revocation signed by shareholders holding more than 50% of the shares or ownership interest. The statement should include:

  • The name, address, and EIN of the business.
  • A clear declaration that the corporation revokes its S corporation election under IRC §1362(a).
  • The effective date of revocation (either current or future).

The revocation can be sent to the same IRS service center where Form 2553 was filed. Revoking S corp status is a significant tax decision, and consulting an attorney or CPA is recommended before proceeding.

Common Mistakes to Avoid When Filing

Errors in filing the S corp election form can delay approval or trigger IRS rejections. Common mistakes include:

  • Failing to get signatures from all members.
  • Listing the wrong effective date for the election.
  • Missing the filing deadline and not applying for late relief.
  • Omitting the LLC’s EIN or complete ownership information.
  • Submitting to the wrong IRS service center or fax number.

To prevent these issues, the IRS recommends reviewing the instructions carefully or consulting a tax professional. Once accepted, keep a copy of the approved form with your permanent business records for future reference.

Frequently Asked Questions

1. What is the S Corp election form used for? The S Corp election form (IRS Form 2553) allows eligible LLCs and corporations to elect S corporation tax status, enabling pass-through taxation and potential self-employment tax savings.

2. When is the deadline to file Form 2553? It must be filed within 75 days of formation or within 75 days from the start of the tax year to apply for that year. Late election relief may be available.

3. Can a single-member LLC file Form 2553? Yes. A single-member LLC can elect to be taxed as an S corporation if it meets all IRS eligibility requirements.

4. What happens if my S corp election form is rejected? If the IRS rejects your election, you can correct errors and refile or request late election relief if the rejection was due to timing or technical mistakes.

5. Do I need an attorney to file Form 2553? While not required, working with a tax attorney or CPA can help ensure accuracy and compliance, especially when handling deadlines or eligibility issues.

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