Once you have decided to be taxed as an S-Corporation there are a few steps to complete. The S-Corp Form 2553 is that tough to complete. But make sure you do it right.
When filing your taxes for the first time, IRS form 2553 can be confusing. There are many things you need to know about this form and what to do if you’re late.
Fortunately, IRS is often flexible and will accept late Form 2553. In this post, we will provide tips to make your tax filing process as simple as possible. Also, remember to submit all required documents by the deadline, including any supporting documents.
Filing Form 2553 may not be as easy as it sounds. In the event that you’re late filing, you will need to file the form with the appropriate state before it is too late.
If the corporation fails to file, it will need to explain why and what the reason was for the delay. If the corporation isn’t filing as required, it will need to explain why it didn’t file and what circumstances led to this failure. You may need to hire a CP to help with the S-Corp Form 2553.
Table of contents
When completing the form, you should first determine the date and the tax year of the corporation. The filing deadline for this form is two months after you request the effective date. However, you can file the form anytime during the current tax year.
In such cases, if the filing is late, the S Corp election becomes effective for the tax year that follows the date entered in Part 1 of the Form 2553. If you’re late, you can get relief if you can show that the late filing was due to reasonable cause. Once you’ve completed the form, you must send it to the IRS’s address.
S-Corp Form 2553
If you are wondering how to file form 2553, it is important to understand the requirements and limitations of this type of document. Generally, if you have more than one shareholder, you should file a Form 2553 for each of them.
The deadline for this type of tax return is usually two months. If you file this form within a fifteen-day period, the IRS is often more lenient. In addition, you must be prepared to provide a compelling reason for the late filing.
If your business qualifies, you can file Form 2553 to be treated as a S corporation. To do so, you must file Form 2553 with the Internal Revenue Service (IRS). This form must be completed and filed online. You can also download and print instructions to file offline.
If you choose to file the form offline, you must provide the legal name of your company, as well as its address. You must include an individual’s name and the words “C/O.”
After creating an LLC, you should choose a tax status for the company. The default status for an LLC is sole proprietorship or partnership. In these cases, you’ll probably be better off keeping your LLC in the default tax status (single-member LLC or multi-member LLC).
This may result in a smaller tax bill. If you decide to file, make sure to check with your accountant to determine the effects on your state’s tax laws and to review S-Corp Form 2553.
If your business follows a non-calendar tax year, you must fill out Form 2553 to report the taxable income for that year. While many companies use the calendar year as the tax year, S corps can use their business purpose, natural, or ownership tax years.
The instructions of the form will explain the requirements for this specific tax year. Here are some of the main questions to ask yourself when filling out Form 2553. If you are unsure, we suggest you read the instructions and consult your accountant.
S-Corp taxation
S-corporations are pass-through entities. That means they pay no federal income tax, and shareholders pay taxes only on their allocated share of the business’s income. However, some states do tax S-corporations directly. Illinois taxes S-corporations at a rate of 1.5%.
Dividends and profits are then passed-through to shareholders, who then pay income tax on their share. S-corporations file an annual tax form called the Form 1120S.
When determining the appropriate amount of distributions from an S-corporation, the IRS examines the method by which items are accounted for. Among other things, these units look at whether a corporate-level gain was properly recognized and recorded, whether a bargain-sale distribution is taxable, and whether a transfer is subject to a built-in gains tax. These units may also review whether the distribution amounts reflect fair market value or not.
The final regulations also address S-corporation shareholder GILTI. The new regulations clarify the inclusion of certain shareholders of S-corporations in GILTI. S-corporations that hold stock in foreign corporations will be affected by the notice.
And S-corporations that operate mixed-funds investment in qualified opportunity funds must comply with the new regulations. The final regulations are effective for the 2022 tax year for S-Corp Form 2553.
For example, John Edwards, a lawyer who made $26 million in a single year with an incorporated law firm, used an S-corporation. He received a salary of $360,000 from the S-corporation as an employee. The rest of the profit was distributed to Edwards as a shareholder’s salary. Since it was distributed to the stockholder, Edwards would have to pay self-employment taxes of 15.3%.
| S-Corp Advantages | S-Corp Disadvantages |
|---|---|
| No Self-Employment Tax | Higher Filing Fees |
| Lower IRS Audit Risk | Requires Owner Payroll |
| Business Carve Out | More Administrative Tasks |
Final thoughts
When you create a business, you must file the IRS Form 2553 to request recognition under Subchapter S of the federal tax code. You must file Form 2553 within 75 days of incorporating.
If your corporation is new, you should put the earliest date when your business acquired assets and began transactions, such as when you first started to hire employees. Additionally, the earliest date you use for this form can be the date you obtained your first shareholders.
If you fail to file Form 2553 by the deadline, you may file it later with proper documentation. In such cases, you should attach a statement explaining the late filing. However, you must request late filing relief within three years and 75 days from the date of the filed Form 2553.
The form must be signed by a designated officer of the business. In the event that the filing is late, you will incur a late fee. This fee will be billed separately.