Eligible small businesses use Form 2553, also known as the Election by a Small Business Corporation, to opt to be recognized as a S corporation for tax reasons. For qualified firms, submitting this form to the Internal Revenue Service (IRS) can result in significant tax savings. But completing this form can be challenging, particularly for business owners who are not accustomed to dealing with tax-related documentation. This article will walk you through the process of completing form 2553 step-by-step.
You must ascertain whether your company is eligible to elect S corporation status prior to completing form 2553. Your company must meet the following requirements in order to qualify:
– Be a domestic corporation
– Have only allowable shareholders, such as people, certain trusts, and estates
– Have no more than 100 shareholders
– Have only one class of stock
– Not be an ineligible corporation, such as some financial institutions or insurance companies
Step 2: Complete the Form with Basic Information The legal name of your company, the employer identification number (EIN), the date the corporation was founded, and the business address are all required in the first section of the form 2553. You must also mention the tax year for which the election is being made in this area.
List each shareholder of the corporation, along with their names, Social Security numbers, and the quantity of shares they possess, in the second section of Form 2553. You must also specify which stockholders are eligible shareholders in this area.
Step 4: State the Start Date. You must provide the start date of the S company election in the third column of form 2553. This day cannot be later than two months, fifteen days after the form is submitted. Step 5: Date and Sign the Form
The authorized officer of the corporation must sign and date the document in the form’s final section. The authorized officer must attest in accordance with this provision that the corporation satisfies the criteria for S corporation status.
Yes, you can fax form 2553 to the IRS. However, each state has a different IRS fax number. By calling the IRS or checking their website, you can obtain the correct fax number.
Mailing Form 2553 to the proper IRS service facility is advised. On the instructions for the form or on the IRS website, you can find the service center’s address.
Late S corporation election filings are subject to a $195 per shareholder, per month fine, up to a maximum of 12 months. If the corporation, however, can provide sufficient justification for the late filing, the penalty may be avoided.
If the S corporation election is approved or denied, the IRS will inform the company. The postal address on form 2553 will get this communication. Normally, the notification will be delivered within 60 days after the form’s filing date. If the election is refused, a description of the reasons why and suggested next measures for the corporation to address the problem will be included in the communication.