See Form 8716, Election To Have a Tax Year Other Than a Required Tax Year, for details on making a back-up section 444 election. An S corp isn’t subject to double taxation the way C corporations can be. A C corp is generally taxed at the corporate level and again at the shareholder level if it pays out dividends. This timeline is suggested because your S corp election will take effect retroactively on the first day of the tax year in which you file IRS Form 2553. To take full advantage of S corp benefits for the entirety of a tax year, early submission is key.
Since A&A, LLP decided to make an election late, it must complete Section I, providing a reasonable cause for the late election. A&A, LLP is a newly formed limited liability partnership (LLP) that was formed on Jan. 1, 2022. Rather than being treated as a partnership for taxes, its members, Aakansha and Asia, decided to make an S-election but did so on May 15, 2022. If you have yet to apply for an EIN, read our guide on how to get an EIN. If the corporation hasn’t received its EIN by the time the form is due, enter “Applied For” and the date the EIN was applied in the space for the EIN.
Step 4: Include the Representations Made in Part IV in Any Request for a Late Election
- Transitioning to an S corporation will implement pass-through taxation, meaning all shareholders can pay tax on their personal income and not at the corporate level.
- If not, have someone holding an executive position (e.g. president, vice president, or treasurer) in the company to sign.
- Under the identifying information, you’ll need to supply the date on which stock of the corporation was transferred to the trust.
- Generally, you must file IRS Form 2553 no later than 2 months and 15 days beyond the date of S corp election.
- Keep in mind that there are costs that come with filing Form 2553.
- Filing form 2553 is the major thing a business needs to do to move from a C corporation (C-corp) or LLC to an S-corp.
- In most cases, you need the consent of all shareholders who own stock in the corporation on the day the election is made, with some exceptions, as outlined in the instructions.
It’s up to the IRS to determine if a business that elects for S corp status will be approved. A calendar year small business corporation has been filing Form 1120 as a C corporation but wishes to make an S election for its next tax year beginning January 1. The 2-month period ends February 28 (29 in leap years) and 15 days after that is March 15.
How does Form 2553 impact my business’s tax situation?
You will also have to provide the IRS with the Effective Date of Election, a list of all shareholders and shares they own, and signatures from a corporate officer and all shareholders. Part III of the form is used solely by corporations making a Qualified Subchapter S Trust (QSST) Election Under Section 1361(d)(2). This type of election is made on behalf of a trust that retains ownership as the shareholder of an S-corp; this will typically be the income beneficiary or legal representative. If this section does not apply to you, you can skip it and jump to Step 4.
If you have filed Form 2553 to the correct address or fax number and have not heard back from the IRS within 60 days, it’s best to directly reach out to the IRS via telephone. Lastly, it’s worth gathering all relevant documentation to verify shareholder details. In certain events, such as a rejection for S corp status, you may need to submit this documentation to the IRS. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section 6103.
The IRS will let you know whether your S corp election has been accepted within 60 days after you file Form 2553. However, if you checked box Q1 in Part II requesting that the IRS send you a ruling letter, acceptance of Form 2553 can take an additional 90 days. To complete Form 2553, you’ll need specific details on every shareholder in your corporation. This includes complete legal names, addresses, date of incorporation, social security numbers or employer identification numbers, and ownership percentages.
- A parent S corporation can elect to treat an eligible wholly owned subsidiary as a qualified subchapter S subsidiary.
- Explore a detailed guide, customizable template and real-world examples.
- Enter the number of shares of stock each shareholder owns on the date the election is filed and the date(s) the stock was acquired.
- Enter the number of shares or percentage ownership and dates acquired for each shareholder in box L.
- Check the appropriate box if you want to make a backup fiscal selection in case the IRS denies your fiscal year request.
- We’ll go into detail on what each page is for below, along with step-by-step instructions for how to fill in Form 2553 correctly.
Your trusted businessfunding provider
Where you file Form 2553 depends both on where you live as well as whether you want to mail the form or fax it. I’m a dad, husband, Certified Financial Planner, tax practitioner, retired Navy veteran, and writer. I love to write articles on financial topics and IRS tax forms.
In Part III, the income beneficiary (or legal representative) of certain qualified subchapter S trusts (QSSTs) may make the QSST election required by IRC Section 1361(d)(2). A filer may use Part III to make the QSST election only if corporate stock has been transferred to the trust on or before the date on which the corporation makes its election to be an S corporation. These points encapsulate the critical aspects of filing Form 2553 for the S-corp election and the consequent changes in taxation and legal standing for a small business corporation. Beyond tax benefits, electing S-corp status can offer legal advantages, including limited liability protection for shareholders. This means personal assets are generally protected from business debts and liabilities.
Check out our Funding Calculators
I especially like to explore financial planning subjects that no one else has tackled before, and help people with financial questions they haven’t found the answers to. Only complete Part III if you made the election in Part I. Once you’ve completed Part I, determine whether or not you need to complete Part II. Only complete Part II if you checked one of the following boxes in Item F. Below the remarks field in Item I, sign and date the form as an accountable form 2553 instructions officer of the company, under penalties of perjury. List the name, title, and telephone number of a corporate officer or point of contact that the IRS may call to obtain more information.
The owners of the business must be US citizens or permanent resident aliens. Owners must also be private individuals and not business entities such as LLCs, corporations, or trusts. For information on relief for late filers, review the “general” section of the IRS instructions to Form 2553.
Small business owners can pick and choose how they want to pay taxes, minimizing their taxable income and acting more strategically. One way they can do this is by filing their taxes as an S-corp. However, if you checked box Q1 indicating that the reason for electing a fiscal year is a “business purpose,” you’ll be charged a fee of $6,200 to use a fiscal year based on a business purpose.
