If you want to elect the S-Corp status on your tax return, you have a limited time to do so. If you miss the due date, you’ll likely have to wait until the following year to elect it, which means higher tax labilities until you can.
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What is Form 2553?
You’ve probably been wondering, “What is form 2553?” If so, you’re not alone. The instructions can be a little confusing, but fortunately, there’s a solution. ContractsCounsel connects you with a lawyer who specializes in IRS tax forms. These lawyers are transparent and can help you prepare your tax form. Here are some tips to help you understand your form:
Form 2553 asks for basic information about your corporation and the tax year it will operate. It also requires information about each shareholder and the corporation’s effective date. The shareholders must sign and date this form to consent to the S corp election. In order to file for an S corp, you must do this by a certain deadline. The deadline is usually in the tax year prior to the tax year in question. For S-corps, that deadline is January 31 of the year in which the corporation was created.
Form 2553 covers the consent of shareholders to operate as an S corporation. It covers how many shares each shareholder owns and their Social Security numbers and EINs. It also specifies the tax year in which they are formed. For example, if there are two people in a partnership, both of them would be listed on the form, and one would own more than the other. This makes it crucial to figure out who owns the shares before you file as an S-corp. This will help you figure out how much to pay in dividends and other benefits of the S corporation tax status.
In addition, remember that you can file your Form 2553 after the deadline, if you can prove good reason for it. You can explain your late filing in the explanation section, using the lines provided. You can also attach a statement. Remember that you must request late filing relief within three years of the date you enter on line E of the form. You can also file this form online or fax it to the IRS. When you do, make sure the person signing it is authorized to do so.
If you filed your business as a corporation, it’s automatically taxed as a C-corporation. You might not think it’s a big deal until you see the double taxation.
Your money is taxed at the business level and again at your individual level when you draw a salary. No one wants to pay double taxes, which is why many corporations choose the S-corp status.
It’s not a business entity, but rather a tax election that you must elect on time with the IRS to be able to take advantage of it.
Why Choose an S-Corp?
You might wonder why you’d add more paperwork to your already large stack and more tax concerns, right?
Here’s why.
Your corporation’s net taxable income usually gets taxed as a business and then again at the personal level. Why pay double taxes?
With an S-corp, the net income gets passed down to the owners and shareholders. So yes, you still pay taxes at the personal level (you can’t avoid them), but you don’t pay them at the business level too, which means more money in your pocket in the end.
Form 2553 Due Date
Aside from determining if you qualify for an S-Corp, you must pay close attention to the form’s due dates.
To elect S-Corp for the current tax year, you must elect it no later than 2 months and 15 days after the first day of the new tax year. For most businesses, this is January 1st, so the form is due by March 15th.
If you started a new business this year, the election is due no later than 2 months and 15 days after your first day of business.
If you want to elect the status for the following year, you can elect it at any time prior to 2 months and 15 days after the 1st of the year.
Can you Elect S-Corp Status Late?
There’s no ‘yes’ or ‘no’ answer to whether you can file Form 2553 late. Does the IRS accept late filings?
Yes, they do, but on a case-by-case basis.
You must prove you had reasonable cause to do so and provide ample proof of it. The IRS will then decide if you can file late.
What is you have an LLC?
First, you’ll need to file for an Employer Identification Number (EIN). This is essentially a social security number for your business, and you’ll need it to get a bank account, obtain an EIN, and register with state labor departments.
In addition, you’ll need to apply for a sales tax identification number. This is a legal requirement no matter what type of business you’re running, and the fee to get this number is usually free.
Another benefit of an LLC is that its members are not personally liable for the company’s debts. The company’s assets need to be enough to cover the debt, so creditors can’t target the owners’ personal assets to recover the debt.
What is an LLC? A LLC can be managed by its members, or by selected managers. A member-managed LLC works much like a partnership, but instead of a board of directors, it’s run by members.
The members elect a manager or managers to oversee the day-to-day operations of the business. In addition to a director, a manager has the power to hire and fire the other members, and employees must be paid.
LLCs must also designate a registered agent, which is the person who receives legal mail and forwards it to the owners. In most states, the registered agent can be an individual within the business, but third-party companies can also perform this function.
The filing of articles of organization brings an LLC into existence. The state will ask for some basic information about the business, including the name of the business, its principal location, and its management type.
You may be surprised to learn that there are many different types of IRS penalties. Most of these penalties are for inaccuracies, but you can sometimes get relief if you show reasonable cause and good faith. Read on to discover some common penalty types and how to avoid them. You’ll be glad you read this article. Hopefully, you’ll have a better understanding of the penalties you may face. And don’t forget to ask if you can get relief from IRS penalties.
IRS penalties for late payments vary. If you’re more than three months late, you’ll face a 5% monthly penalty on the outstanding balance. The maximum penalty is 25 percent. It kicks in on September 16, five months after April 15. However, if you don’t owe taxes, you can avoid this penalty by filing on time. Information forms, such as receipts, are subject to different penalties. For instance, if you’ve underpaid your taxes by $200, you’ll be penalized with a half-percent-per-month penalty.
Late-payment penalties can increase your tax bill by up to two hundred dollars. If you can’t pay your taxes by the deadline, the IRS will assess a late-payment penalty equal to 5% of the unpaid amount. If you don’t pay your taxes on time, the penalty can reach as much as 25 percent of your total tax bill. However, if you file on time, the penalty will only be 0.25% of the amount owed.
Final Thoughts
Choosing the right business entity can be challenging, but it’s essential to start with the right foundation. The right business entity can help you achieve your business goals, save money on taxes, and protect your assets. But it’s important to remember that the entity you choose is not set in stone.
If you decide to change your business structure as your company grows and changes, you can do that easily. Simply filing the correct paperwork with the government can change your entity type in minutes.
If you’re thinking about filing Form 2553, make sure you do so early in the tax year or plan ahead for next year, filing early.
The key is to file on time so you can lower your tax liability and protect your business at the same time. The S-Corp status is good for the life of your business, so this is just a one-time form you must complete to elect the status until you no longer want it.