The IRS Form 2553 is a fairly complex document, consisting of four parts. Part I is the general information section. It requires you to complete identifying information for each shareholder. You should also provide a place for signing.
There are numerous technical questions on the form, but they are all clearly labeled and explained. If you do not understand them, consider seeking assistance. Here’s some helpful information about the IRS form 2553.
Table of contents
Some Background
If the corporation is a single-member LLC, the shareholders must consent to the S corporation election. If there are more than ten shareholders, additional copies of the form may be necessary. You must also list former shareholders, including those who held stock between line E and the date of filing the form.
You should make sure to fill in the information correctly and include names of any stockholders who own less than 50% of the stock. This information is required by law, and any non-compliance should be accompanied by “reasonable cause” for penalties.
If you do not meet these requirements, you can file the Form 2553 after the due date if you can show good cause. You can write the reason for the late filing on the lines provided, or attach an explanation statement.
The time period for late filing is three years and 75 days after the date entered on line E. To make the filing official, you should sign the form with the proper officer. In addition, make sure to include the name of each shareholder in the shareholders’ section.
You should note that you cannot e-file the IRS Form 2553. You can either fax it or mail it. If you’re worried about the timeframe, you can always contact an expert on ContractsCounsel. This website matches you with experts in filing tax forms.
The process is transparent, so it’s easy to hire a lawyer through the website. You can also hire a lawyer who specializes in a particular area.
Depending on your type of business, you may want to use a non-calendar tax year. If your business operates on different time cycles than most other businesses, you’ll need to use a business purpose tax year. The instructions on Form 2553 will give you more information.
If you operate a business that doesn’t operate on a calendar year, you should consider a qualified subchapter S trust. This trust is created when an S corporation shareholder dies. If this happens, the S corp’s assets are transferred to the trust with one shareholder.
If your business is owned by a single person, they’ll need to sign a consent statement and provide their social security numbers and/or EINs. In addition to these information, shareholders will also need to specify their tax year.
In some states, stock is considered community property, so if a husband and wife own 100 percent of the company, both of them will be considered individual shareholders. Regardless of the type of ownership, it’s important to file IRS Form 2553 on time to avoid any penalties and interest.
What is an LLC?
When it comes to taxes, what is an LLC? You may be wondering what is different between an LLC and a corporation. While both entities are subject to federal and state tax rules, LLCs enjoy pass-through taxation.
Unlike corporations, LLCs do not have to file income taxes. Instead, owners report business income and pay personal taxes. This means that there is no need to file separate tax returns for each member. It’s important to know the differences between the two entities and how each works.
An LLC is like a company with members. Each member can participate in management, and voting rights are based on ownership percentages. Because members do not have to live in the United States, LLCs tend to attract investors, partners, and vendors who are not based in the U.S.
An LLC can be organized to operate in different states, and you can choose which state’s laws apply to your business. Moreover, if you want to set up a limited liability company, you can opt out of the corporate tax structure in the operating agreement.
In most states, you do not need to incorporate your LLC unless you have a valid operating agreement. However, you should always draft an operating agreement with your members if you have multiple members. These agreements will detail the division of ownership, labor, and profits, and prevent disputes between members.
In addition, they will detail who has the authority to do what and how they vote. The agreement should also outline the transfer of membership interests between members. Make sure to get legal advice if you aren’t sure whether your LLC operating agreement is a good idea.
If you’ve chosen to file your company as an S-corp, you must file IRS Form 2553 at the beginning of the tax year. This is to ensure that your company is taxed as an S-corp and the earnings are passed through to the company owners.
What is IRS Form 2553?
Form 2553 is an election document. It lets the IRS know you are electing to file taxes as an S-corp. This means the company doesn’t pay taxes. This doesn’t let you off the hook for taxes on your earnings though. Instead, the liability is passed through to the owners.
It’s important not to confuse S-corps with non-profits who don’t pay taxes. The owners of an S-corp are still liable for the taxes, but on their personal income tax returns, not their business tax returns.
To be eligible to file as an S-corp, you must file IRS Form 2553 by March 15th or the 15th of the 3rd month of the tax year. This may differ if you operate on a fiscal year versus a calendar year.
Who Should File IRS Form 2553?
Owners who want to limit their liability and their pass-through tax liabilities do well filing as an S-corp. When you choose this election, you are not considered self-employed. This means you avoid the self-employment tax, which can be rather expensive for company owners.
Here’s the catch, though. You’ll pay FICA (Medicare and social security taxes) on any payroll income, such as salary. But you won’t pay them on any remaining profits that are passed through to you for tax purposes. This is where the savings comes into play.
Business owners also often pick to file as an S-corp to limit their liability. The business is a separate entity so no one can come after your personal assets if for business debts or other liabilities.
Finally, an S-corp can help avoid double taxation. For example, an LLC will pay taxes on any profits the company earns and then the individual who receives the profits as income will pay taxes again. Filing as an S-corp eliminates this.
To qualify to file Form 2553, you must:
- Be a US based business
- Have fewer than 100 shareholders
- All stock classes must be the same for all shareholders
- All shareholders must be approved citizens and be individuals
How to File IRS Form 2553
Knowing how to complete IRS Form 2553 is important. Here’s what you should know. You can get the form from the IRS website. Print it out or fill it out online. You’ll submit it to the location that corresponds to your situation in the instructions.
The IRS usually responds within 90 days letting you know if the S corp election was approved. This is the timeline for businesses use the calendar year for their tax year. If you use a fiscal year, a response could take longer.
Typically, there’s no charge, but if you don’t use a typical calendar year, there may be a fee. Don’t send money with the form, though. The IRS will let you know if there is a fee.
Once you have the form, here are the sections you must complete.
Election Information
In the first section, you must identify the company and all owners or shareholders of the company. You’ll provide your business name, address, and phone number. You must also provide the business’s EIN.
Next, you’ll provide the personal information for all owners or shareholders. This includes the name, address and social security number of each owner or shareholder. Each person must sign a consent statement and you must provide information about the number of shares each person holds. Lastly, you must indicate the tax year the form applies to.
Fiscal Year Election
If your company doesn’t operate on a calendar year, you must indicate its fiscal year in Part 2. You must also provide sufficient evidence as to why you are electing this tax year, such as that it’s normal for the industry or any other viable reason.
Qualified Subchapter S Trust Election
If your estate planning has your ownership transferred to a trust, you’ll complete this section. If you don’t have a trust set up as a part of your estate planning, you can skip this part.
Late Corporate Classification Election Representations
If you’re late filing Form 2553, you must complete this portion which includes a detailed explanation as to why the form is late.
State Requirements for Form 2553
IRS Form 2553 is a federal tax form and doesn’t pertain to your state taxes. Most states don’t have special tax treatment for S-corps, but some do. It’s best to talk to your tax advisor or accountant about the differences and anything you must do in addition to Form 2553.
If your state requires different filing instructions, your tax advisor can help you determine what you must do to ensure you file your taxes correctly.
Final Thoughts
Filing as an S-corp can give you a tax shelter, allowing you to keep more money in your pocket. But it must be approved by the IRS first and Form 2553 must be filed on time. Most businesses will file it by March 15th, but if you run on a fiscal year, it’s the 15th of the third month of your tax year.
The IRS has the final say, so make sure you file the form on time and provide all the necessary information. File your form on time and follow all instructions. It’s best if you work with a licensed tax advisor or accountant as you complete the form to ensure that you complete everything correctly.