The IRS Form 2553 is required for the filing of a business’s tax return. While most businesses use the calendar year, S corps can use any other tax year. They may use a natural tax year, ownership tax year, or business purpose tax year.
The purpose of completing the Form 2553 is to let the IRS know about the business and the income that it makes. Listed below are some important questions that you need to answer.
-Who must file the Form 2553? If the company is an S corporation, all shareholders must consent to it. Those who have failed to meet the filing deadline must provide “reasonable cause” for the non-compliance. There is a separate form for former shareholders.
The current shareholders of the business must also be listed, as well as any stockholders who held stock between line E and the filing date. The shareholders must also sign a consent statement.
When should a corporation file? There are several reasons for this, but most corporations will have a filing deadline between January and March 15 of the year. Generally, the IRS Form 2553 is due March 15 of the year following the year in which it was created. If your company is a seasonal business, however, its filing deadline is October 1 and December 15.
What is an S-Corporation?
Before we look at the specific benefits of an S-Corporation, it is important to understand what it is and how it differs from other types of corporations. An S-Corporation is a type of business entity that is taxed as a partnership, but it has separate status from its owners.
S-Corporations are typically run by employees, who report their income and losses on their personal tax returns. They may not be partners in another corporation, nor are they non-resident aliens. An S corporation can have no more than 100 shareholders, and they may not be owned by a foreign entity or partnership.
While LLCs are easier to form than S corporations, they are typically limited to a sole proprietor’s ownership. Additionally, financing options are often limited to bank loans and equity investors, which limit the company’s growth potential.
While S corporations are largely tax exempt from corporate taxes, they are still required to file tax returns and report their earnings to the federal government. The tax return filed by S corporations is called Form 1120-S. It is accompanied by Schedule K-1, which reports the income to shareholders.
One of the primary benefits of an S-Corporation is the ease of taxes. While S-Corporations do not pay any federal income tax, their profits are passed through to their shareholders, which means no double taxation.
Because an S-Corporation does not pay taxes, shareholders can still receive reasonable salaries as employees and benefit from tax-free distributions. So, how can you benefit from being an S-Corporation?
A Word About IRS Penalties
Taxpayers can request a reduction or elimination of penalties after they are assessed. Failure to File (FTF) and Failure to Pay (FTP) penalties are assessed electronically. You can’t request abatement for estimated tax penalties. However, you can request exclusion of estimated tax penalties when you file your tax return. If you were late filing or paying, you can request an exemption from the penalty. To request abatement, you must include the affidavit of your doctor and your medical records with the tax return.
The IRS also applies a combined penalty for late filing and failure to pay tax. In this case, the combined penalty is 5% per month (1/2%) of the unpaid balance. The combined penalty would cease when the late filing penalty reaches 25 percent. The failure to pay portion of the combined penalty continues to accrue at half-percent per month until it reaches 22 1/2%. In addition to the penalties, the tax amount is not affected by interest charges.
Whether or not you filed your tax return on time can increase your tax bill. While the penalty for failure to file varies, there is a minimum amount for the penalty: $435. For example, if your tax return is 60 days late, the penalty is 100% of the unpaid balance. As you can see, you don’t want to end up with an unpaid balance of more than $5,000. But the IRS penalty doesn’t have to be crippling. If you file late and pay the taxes in full, you should still be aware of the penalties for late filing and failure to pay.