Do you want a great deal of flexibility while paying taxes for your small business? Then choose Form 2553 for filing taxes. Filing this form could bring many significant tax benefits for your business because choosing Form 2553 can give your LLC or c corp the S corp status during tax filing. Isn’t it exciting? You own an LLC or C corporation but can file your taxes as an S corporation and get business benefits.
Despite this, filing the form can be tricky for you to understand because of the IRS’s complicated instructions. For your ease, we will describe the IRS Form 2553 instructions and how you can file it accurately. Stay with us.
What Is Form 2553?
Form 2553 is the IRS (Internal Revenue Service) tax form for S corporations. It is a tax form used in the US to submit taxes for eligible domestic corporations. Most LLCs and C corporations use this tax form to be treated as S corporations for federal income tax purposes.
Suppose you own an LLC, but you want the tax benefits of an S corp. To get all the benefits, you should file your taxes as an S corporation. And at that time, you will need Form 2553 to file your taxes as an S corp.
By choosing Form 2553, a company can avoid double taxation. Because when you file Form 2553, your company’s income, tax credits, and deductions are passed through to the shareholders. The company does not pay federal income tax; instead, the shareholders report the income and losses on their tax returns.
Filing Form 2553 is an alluring opportunity for domestic LLCs and C corporations to be taxed as S corporations and get valuable benefits. Each business owner must sign and file Form 2553 with the IRS.
Why Do You Need to File Form 2553?
Who doesn’t want tax benefits? It’s known that LLC and C Corp companies choose to be tax-treated like S Corp to get several tax benefits. Now, we will elaborate on some key points you will get after choosing the S Corp election form.
Tax Savings
There are many reasons to file Form 2553, including tax savings. When you choose to file taxes as an s corp, you can get tax savings options.
Do you know the S Corps saves on taxes? S corporations do not pay federal taxes. S corporations are taxed only once, which goes to the shareholder’s personal tax return. The corporation does not pay income tax. So, if you choose to file as an S corporation, you can avoid double taxation for your company. And you can save on your tax filing.
But a c corp doesn’t have these benefits. That’s why C Corp companies choose to file Form 2553. On the other hand, LLCs file Form 2553 because it allows them to save on self-employment taxes.
Avoid Double Taxation
By electing S-corporation status, C corporations and LLCs can avoid double taxation. We already talked about this. In S Corp taxation, companies can have pass-through taxation. Their profit, loss, and other tax benefits are passed to the shareholders or members.
So they don’t have to go through double taxation. That’s why, most of the time, several companies form their company as an LLC or C corp but then pay tax as an S corp, filing Form 2553.
Tax Reductions
Are you an owner of an LLC? Then choosing to file Form 2553 would be a great idea for you! Because electing S corporation status can save you from self-employment taxes. Self-employment counts as Social Security and Medicare taxes. These taxes are applied to shareholders of LLCs. But submitting taxes like an s corp can help you to avoid self-employment taxes.
So, now you know the reasons why LLCs and C corporations choose to file Form 2553. Filing Form 2553 is not only your need, but it also offers various advantages for companies. We will discuss the advantages later. Stay with us.
What Are the IRS Form 2553 Instructions?
It’s obvious that filing Form 2553 sounds like a great idea for both small businesses and large corporations. But before filing the form, ensure you can file Form 2553 S Corp.
Corporation Eligibility
- The business should be a domestic company in the US.
- All shareholders must be US citizens.
- There can only be one class of shares in the company.
- The corporation can’t have more than 100 shareholders.
- Only individuals, estates, tax-exempt organizations, and certain trusts can be shareholders.
- All shareholders must consent to the election.
Not Eligible Entity
- Non-resident alien shareholders
- Corporations with multiple classes of stock
- Certain tax-exempt organizations
- Banks or financial institutions
- Insurance companies
- Domestic International Sales Corporations (DISC)
Tax Requirement Eligibility
- The tax year ends on December 31
- A natural business year
- An ownership tax year
- A tax year elected under section 444
- Same accounting method every year.
- 52-53-week tax year ending with a year given above.
How Do I File IRS Form 2553?
Do you have a small business located in the US? And you want to achieve the s corp status to file your taxes and get more tax benefits. Then follow our step-by-step instructions for filing the S Corp election form (Form 2553).
- Determine Eligibility: This is the first requirement while filing Form 2553. It’s important to ensure your company’s eligibility before filing the form. We already explained the criteria for eligible corporations. Check the upper eligibility list to determine if you can file the S corp election form.
- Collect Information: To fill out the form, you will need some necessary information about your company, the company’s shareholders’ information, and other details.
- Shareholder’s Consent: It already appears on the eligibility list. It’s necessary to confirm every shareholder’s consent before filing the S corp election form. To confirm the shareholder’s approval, every shareholder should sign the form.
- Collect the Form: The form is available on the IRS website. You can search by typing “Form 2553” on the IRS website and then download it.
- Fill out the Form: There are 4 parts you need to complete for filing Form 2553. These four parts contain information about your business, business activity, and Shareholder’s signature.
Here is a breakdown of each part below:
Part I: Election Information
This part is necessary to fill out carefully. In this first part, you must complete items A to N, containing your information. It is the longest part, with a lot of information, including your EIN, name, address, information about your business, the purpose of your business, fiscal year, shareholders information, Shareholder’s signature, SSN, stock information, etc.
Part II: Selection of Fiscal Year
Part II is for selecting the fiscal year. The fiscal year is a 12-month period that starts on the 1st of October and ends on the 30th of September the following year. According to the government, the fiscal year is necessary for financial reporting by businesses. To complete this part, you must fill out items O to R, where you can choose your tax year. But if you already selected a calendar year in Part I, then you don’t fill out Part II.
Part III: Qualified Subchapter S Trust Election
Part III of Form 2553 is not for everyone. If your company owns an S corp. share and pay all income tax, then you are qualified to fill out this part. Most small businesses do not need to fill out this part. If you still have doubts about this, you could get suggestions from an attorney or a professional.
Part IV: Late Corporate Classification Election
This part will be necessary if you miss the deadline for submitting IRS Form 2553. To complete this part, you should carefully read and agree with Part IV’s representations. This part explains that you are granted late election relief. But if you don’t meet the requirements in this part, your application for late election relief will not be granted.
- Submit the Form: After completing the required parts, recheck and submit your form following the form instructions. Send your form to the appropriate address online or by mail.
- Keep Records: Keep a record copy of Form 2553. It’s important to keep records for future reference and compliance purposes.
Benefits to Filing Form 2553
Why do you need to file IRS Form 2553? To achieve S corp status and get the benefits that only S corp businesses enjoy. There are all sorts of benefits you will get when you file Form 2553.
C corp and LLC companies normally can only get some of the benefits that S corp obtain. But if C Corp and LLCs file taxes as S corporations do, they can have the same benefits. Now we will describe some crucial benefits below that you will get if you file Form 2553.
- Reduce Tax Liability: Some small business owners with a c-corp business structure file form 2553 to reduce their tax liability. There are differences between C Corp. and S Corp. Because C Corp has to file taxes twice, on the other hand, s Corp files taxes once. That’s why C Corp wants to file form 2553 to reduce its tax liability as an S Corp.
- Tax Benefits: We already explained that filing s corp form 2553 can get you several tax benefits, including tax savings, pass-through taxation, tax reduction, self-employment tax savings, tax deduction on insurance, etc. If you own a small LLC and want all these tax benefits, then filing Form 2553 will be great.
- Easy Transfer of Ownership: In the s corp business structure, transferring ownership or membership is easy. But in C Corp, it isn’t easy. For that reason, C Corp companies choose to file form 2553 to have this benefit.
- Defense Against Creditors’ Lawsuits: In a sole proprietorship or partnership, anyone can claim against you. But an s corp can protect shareholders’ personal assets. For that reason, small businesses file Form 2553 to avoid creditor claims.
- Credibility: If you file Form 2553 and achieve S Corp status, it can enhance the credibility of your business. Obtaining s corp status, you can get loans, investors, etc.
How Much Should I Pay for Form 2553 Late Filing?
For a late filing, a corporation should meet some conditions. Otherwise, their application will be denied.
Conditions:
- The corporation should review the IRS resources and their Form 2553 instructions to be sure they are qualified for late election relief.
- The company must be categorized as an S corp.
- The corporation should have reasonable cause for missing the deadline.
- If any administrative error happened for missing the deadline, then show that.
- The corporation should provide statements about shareholders’ income reports.
If you meet the upper conditions, you can file for the late penalty. If you are filing late, you should complete Part 4 of Form 2553. The late filing penalty for Form 2553 can vary according to the situation.
That’s why you should always check the IRS instructions to get up-to-date information about late filings. The expected penalty fine for Form 2553 could be $270 per shareholder for each taxable year.
When Is the Form 2553 Deadline?
To avoid penalties, corporations should file Form 2553 on the due date. Also, filing the form on time will make a good impression on your company with the government. The filing guidelines are for the following:
- Initial Filing: Form 2553 should be filed within two months and 15 days of the beginning of the tax year. This means if you want to become an S corp in a year, the due date will be March 15 of that year.
- Late Filing: for missing the deadline, the date for late filing would be within 3 years and 75 days of the requested effective date.
Remember that the deadlines could vary depending on several factors, including tax year, business type, etc. Please check the specific date on the IRS website before filing.
Get Help!
We can understand that filing Form 2553 could be a hassle sometimes because the IRS instructions and filing process are quite tricky for general business holders. To overcome this situation, you can get help from a professional like Business Globalizer.
We can offer you all the necessary services in one place. And you will never miss the deadline with us. Our professionals are ready to file the documents quickly and accurately. Just contact us and never worry about filing Form 2553.
FAQs on Form 2553
Q1: Does the C Corp need to file Form 2553?
A: No. Generally, C Corp. can’t fill out the form. The form is for only s corporation companies. But C corporation companies can file this form if they want. For filing Form 2553, the C Corps should change their tax status and elect the S Corps status. To achieve the S Corp status, C Corps and LLCs should meet the eligibility requirements of S Corp.
Q2: Can I file Form 2553 online?
A: No, Form 2553 can’t be filed online. You have to file this form following the IRS’s instructions. The IRS instructed us to file this form via mail or fax.
Q3: What is the cost of submitting Form 2553?
A: The fee for submitting this form could vary depending on various factors. To stay current on the filing fee, check the IRS form and consult with an attorney or a professional service. They can calculate the fee accurately and also assist you in filling out the form correctly.
Bottomline
We assume that you are now clear about the IRS Form 2553 instructions. You can contact the IRS or us if you still have any questions regarding your LLC or c corp being taxed as an S-corporation or how to fill out Form 2553. We can give you 24/7 support for your service.
So, don’t hesitate and call us today. And take away the benefits of US tax filing Form 2553 for your business and ensure your business’s social security.
