Small firms that seek to be recognized as S-Corps for tax purposes must submit Form 2553. A corporation known as an S-Corp is taxed similarly to a partnership or a sole proprietorship, which means that the income of the business is transferred to the owners’ individual tax returns. Small business owners may save a lot of money on taxes as a consequence, but not all companies can qualify for S-Corp status.
Any small firm must submit Form 2553 to the IRS in order to be classified as an S-Corp for tax reasons. This includes businesses that are S-Corp eligible, such as corporations, partnerships, and LLCs. The business must be owned by no more than 100 individuals or specific types of trusts, all of whom must be shareholders. Additionally, the company can only have one class of stock and must be a domestic corporation or LLC.
By the 15th day of the third month of the tax year in which the S-Corp status will go into effect, Form 2553 must be submitted to the IRS. For instance, a small business must submit Form 2553 by March 15, 2021, if it wishes to be taxed as an S-Corp for the 2021 tax year. The S-Corp status might not become effective until the subsequent tax year if the form is submitted after this deadline.
You can use the IRS’s online tool to submit Form 2553 online. Businesses that meet the eligibility requirements—which include having their principal place of business in the United States and submitting all applicable tax payments and returns—can choose this option. The online application can be finished in a matter of minutes and is typically quicker and simpler than submitting a paper form.
A one-member LLC is unable to submit Form 2553. Any company that wants to be an S-Corp must have at least two shareholders. However, a single member LLC has the option to alter its tax classification to an S-Corp by submitting Form 8832, which is utilized to do so. It is necessary to make this choice within 75 days after the establishment of the LLC or the start of the tax year in which it will take effect.
The IRS must receive Form 2553 from small firms if they want to benefit from the tax advantages of S-Corp status. This form, which can be submitted online or by mail, is due by the 15th day of the third month of the tax year in which the S-Corp status will become effective. Single-member LLCs can elect to be taxed as an S-Corp by completing Form 8832, but they are not eligible to file Form 2553.