What is an IRS Form 2553? | S-Corporation Election
No business owner wants to experience double taxation. Luckily, there's a way to get around corporate taxes. For small or mid-sized businesses, it's possible to file an IRS Form 2553 to be considered an S-Corporation for the purposes of taxes. Once considered an S-Corporation, you will only pay individual taxes on business income rather than also having to pay corporate taxes.
The IRS Form 2553 needs to be sent in before the tax year up for consideration, and the IRS will send back an acceptance letter if the application is approved. Only some businesses will qualify for the IRS Form 2553.
Steps to file your S-Corporation Form 2553 Online
- What Is an IRS Form 2553?
- What Is a 2553 Form Used for?
- Can You File a 2553 S-Corporation Form Electronically?
- Register Your 2553 S-Corporation Election Form Online
- Register Your 2553 S-Corporation Election Form by Mail or Fax
- How Long Does It Take to Complete a 2553 S-Corporation Election Form?
Companies may be structured in multiple ways. The structure of a company generally provides protection for business owners by distributing liability or placing liability in the company itself rather than the company owners. However, it also controls how the entity is taxed. One form of company structure is an S-Corp. An S-Corp is a pass-through entity in which income flows through shareholders rather than being held within the company itself.
IRS Form 2553 allows a business to declare itself an S-Corporation for the purposes of taxation. However, the IRS will still be able to decide whether it will accept this declaration. The IRS Form 2553 can be submitted through an online tax filing service or by mail or fax.
Some company structures lead to double taxation. The company is taxed on the profits that it brings in, and then the shareholders are taxed again when they take out draws or income. In order to save money, a company can instead choose to be defined as an S-Corporation.
Because income goes directly to the shareholders under an S-Corporation, these shareholders and their profits will only be taxed a single time. This allows them to avoid corporate tax entirely and reduce their total tax burden.
There are some requirements for filing an IRS Form 2553, so it isn't applicable to all businesses. Further, IRS Form 2553 only impacts how a business is treated in terms of federal taxes. It may not impact how the business is treated on a state level.
To apply to be treated as an S-Corporation, a business must:
- Have fewer than 100 shareholders.
- Have only individual, not corporate, shareholders.
- Have no nonresident aliens as shareholders.
It's possible to fill in the 2553 S-Corporation form electronically through a filing service. In order to complete your IRS Form 2553, you will need the following information available:
- EIN. A business will need an Employer Identification Number to identify itself.
- Effective date. It's important to fill out this form before its potential effective date.
- Tax year. Some companies operate on a calendar tax year, and others operate on a fiscal tax year.
- Shareholder information. For each shareholder, you will need a signature, date, percentage ownership and SSN.
If the entity being declared an S-Corporation is a trust, further information may be required.
Though this information can be filled out online and sent through an online filing service, ultimately an original paper copy will need to be filed. If you aren't using a third-party filing service, you will need to either fax or mail in the original copy of your 2553 S-Corporation form.
To register your S-Corporation election form online, you will need to use a tax filing service. However, once you have given basic information about your business and submitted shareholder information (along with their signatures), the S-Corporation election file can be processed. It's important to process this file before the tax deadlines for a given year as this election directly influences the amount of taxes your organization owes for that year.
The IRS Form 2553 itself does not allow for online filing or digital filing, though there is a digital, fillable form available that can be sent out. If you're interested in registering your 2553 S-Corporation election form through the internet, you will need to work through a third-party application service. Filling in the IRS Form 2553 online is generally more convenient.
Mail and fax are the default methods of registering for an S-Corporation election. The IRS Form 2553 can be filled out digitally, printed and then either mailed or faxed to complete the processing. However, regardless of whether mail or fax is used, it's possible that the form could take up to two months to process.
Once filing has been completed either via mail or fax, a business will receive an acceptance letter. If the business does not receive an acceptance letter, the responsible party will need to verify that its form was both received and processed.
With the help of a tax service, an S-Corporation election form should not take long to submit. It does not require large amounts of information. The only delay in the processing of an S-Corporation election form is likely to be in gathering shareholder information and shareholder signatures. If there is a small number of shareholders (or if they all immediately sign), the election form can be completed in a matter of minutes.
Once the election form has been submitted, however, the processing time may take a while. It may take up to 60 days to receive the results of the 2553 S-corporation election form. Once the form has been processed, you will receive a letter from the IRS that either accepts your request for S-corporation status or rejects your request for S-corporation status. You are then able to appeal if you desire it.
An IRS Form 2553 must be completed more than two and a half months before the relevant tax year. Given the important timing constraints, it's vital that a business applies for the 2553 S-Corporation election once it is made aware that it needs to file it.