Form 2553: The Ultimate Easy Guide to S Corp Election

Introduction: Understanding IRS Form 2553

Form 2553, officially titled Election by a Small Business Corporation, is an IRS tax form that allows qualifying corporations and LLCs to elect S corporation status. Choosing S Corp status can provide major tax benefits, including reduced self-employment taxes and more efficient profit distribution.

Small business owners often turn to Form 2553 when they want:

• Potential tax savings

• More flexible compensation structures

• Avoidance of double taxation

• Greater control over distributions

Electing S Corporation status is not automatic — you must formally notify the IRS by filing Form 2553 correctly and on time. This guide breaks down everything you need to know so you can make a confident and well-informed decision.

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What Is Form 2553?

Form 2553 is the IRS form used by small businesses to elect S corporation tax status. Without filing this form, the IRS will classify your business according to its default tax rules:

• Corporations → taxed as C corporations

• LLCs → taxed as partnerships or disregarded entities

By filing Form 2553, your business chooses to pass income, losses, deductions, and credits through to shareholders, avoiding the double taxation associated with C corporations.

Filing Form 2553 allows eligible businesses to:

• Pay less in self-employment tax

• Distribute profits more strategically

• Avoid double taxation

• Create a cleaner compensation structure

Who Should File Form 2553?

Form 2553 is typically filed by:

• Corporations wanting S corporation status

• LLCs taxed as partnerships or disregarded entities that want to elect S Corp taxation

• Single-owner LLCs wanting personal tax savings

• Multi-member LLCs seeking more efficient taxation

• Existing businesses transitioning from C Corp to S Corp

Many small businesses file Form 2553 to reduce tax liabilities legally and gain operational flexibility.

Eligibility Requirements for Filing Form 2553

The IRS has strict rules governing who may elect S corporation status. Your business must:

✔ Be a domestic corporation or LLC

Foreign entities are not eligible.

✔ Have only allowable shareholders

Allowed shareholders include:

• U.S. citizens

• Permanent residents

• Certain types of qualifying trusts and estates

NOT allowed:

• Corporations

• Partnerships

• Nonresident aliens

✔ Have no more than 100 shareholders

This includes family members counted as one shareholder under IRS rules.

✔ Issue only one class of stock

S corps can vary in voting rights but not in economic rights.

✔ Use a permitted tax year

Typically a calendar year, unless you file additional IRS forms.

If your business fails any of these requirements, the IRS will reject your submission.

When to File Form 2553 (Deadlines)

The IRS requires Form 2553 to be filed:

1. No more than 75 days after the business begins operations, OR

2. No later than March 15 of the tax year for existing businesses, OR

3. At any time during the preceding tax year for the following year’s election

Businesses that miss the deadline may still qualify under IRS late election relief, provided they meet certain criteria.

Benefits of Filing Form 2553

Electing S corporation status can bring multiple advantages:

1. Reduced Self-Employment Tax

Owners pay themselves:

• A reasonable salary (subject to payroll taxes)

• Additional profit distributions (not subject to self-employment tax)

This structure can significantly lower tax liability.

2. Avoiding Double Taxation

Unlike C corporations, an S corp’s income is not taxed twice.

3. Simple Pass-Through Taxation

Income, losses, credits, and deductions pass directly to shareholders.

4. Easier Profit Distribution

S corp owners can structure compensation efficiently.

5. More Attractive to Small Business Owners

The S Corp classification blends liability protection with favorable taxation.

Step-by-Step Guide to Filing Form 2553

Step 1: Confirm Eligibility

Ensure your business meets all S corporation requirements.

Step 2: Gather Required Information

You will need:

• Business name and address

• Employer Identification Number (EIN)

• Incorporation date

• Tax year

• Shareholder names and ownership percentages

• Shareholder signatures

Step 3: Complete the Form

Form 2553 has four parts:

✔ Part I – Election of S Corporation Status

Required for all filers.

✔ Part II – Selection of Fiscal Tax Year

Only required if choosing a non-calendar tax year.

✔ Part III – Qualified Subchapter S Trust (QSST) Election

Applies only to certain trust shareholders.

✔ Part IV – Late Election Relief

Used when the business is filing after the deadline.

Step 4: Obtain All Shareholder Signatures

The IRS will reject incomplete forms.

Step 5: Submit Form 2553

You can send it by:

• Fax

• Mail (to the correct IRS service center)

Processing usually takes several weeks.

Common Mistakes When Filing Form 2553

Avoiding these errors helps ensure approval:

❌ Missing signatures

Every shareholder must sign.

❌ Filing after the deadline

Unless you qualify for late relief.

❌ Using multiple classes of stock

Disqualifies you automatically.

❌ Incorrect tax year selection

Must follow IRS rules.

❌ Incomplete shareholder information

Ownership percentages must be accurate.

What Happens After Filing Form 2553?

Once filed:

• The IRS reviews your application

• You may receive a confirmation notice

• Election takes effect for the current tax year if filed on time

• If rejected, the IRS will explain the reason

If approved, you officially operate under S Corporation taxation for federal purposes.

FAQs About Form 2553

Is filing Form 2553 mandatory?

No. It’s only required if you want to elect S corporation status.

Can LLCs file Form 2553?

Yes — most LLCs that meet IRS rules can elect S Corp taxation.

What happens if I miss the deadline?

You may qualify for late election relief using Part IV of the form.

Do I need an attorney or CPA?

Not required, but tax professionals can help prevent errors.

Can I revoke S corporation status?

Yes, using IRS Form 1120-S revocation procedures.

Conclusion

Form 2553 is a powerful tax tool that allows small businesses to elect S corporation status and potentially save thousands of dollars in taxes. Understanding eligibility rules, deadlines, and the filing process ensures your business makes a confident and effective decision.

If you’re preparing tax documents or other business agreements, you can create customized documents tailored to your needs at: https://createmydoc.com

For the official IRS form, instructions, and updates, click here (This is the authoritative source for everything related to Form 2553.)