What you need to know about IRS form 2553

  • April 2, 2021
  • Blog

Whether you’re a small business owner or just curious to know what the IRS form 2553 is, you’re at the right place. 

What is form 2553? 

Form 2553 is a tax form that businesses can file. Form 2553 is targeted towards small businesses because it helps them receive better tax returns and benefits. Form 2553 also lets businesses classify as an S corporation instead of a C corporation. In the end, filing a form 2553 helps small businesses avoid the large taxes a corporation encounters. However, there are a few things to note about form 2553. It Isn’t a default tax classification, so companies will need to request to file their taxes this way. Also, a form 2553 does not mean a business is exempt from paying FUTA and FICA taxes on their earnings. 

C Corporation vs S Corporation

The biggest difference between a C corporation and an S corporation can be described in one word- taxes. There are other differences between these classifications like how they were created and ownership regulations. However, we are just focusing on taxes. S corps, also known as “Small business corporations” or “Subchapter S corporations,” do not pay taxes. Instead, the business owners count the company’s revenue as personal income. A C corp files taxes on all forms of income. 

There are more benefits to classifying your business as an S corp and filing a form 2553. For example, it helps small business owners eliminate double taxation. Double taxation occurs when an owner pays taxes on the business profits and their personal income. The personal income was derived from the business’s profit, therefore, the owner was taxed twice. 

Who does a form 2553 apply to? 

Form 2553 applies to a business owner, but mainly a small business owner. In order for a corporation to qualify as a small business corporation, they must fill out a form 2553 election and all shareholders must sign it. If your business is a domestic corporation or entity, has no more than 100 shareholders, and ownership and resident requirements are met, you can file a form 2553. However, if your business is a bank (or any financial institution), a domestic international sales corporation, or an insurance company, you are not eligible to file a form 2553. 

 What makes form 2553 different from other tax forms?

Form 2553 differs from other forms for a variety of reasons. For example, form 8832 and form 2553 vary in tax classifications. A company would file a form 8832 if they want to be taxed as a C corporation, sole proprietorship, or partnership. On the other hand, a business or LLC would submit a form 2553 if they want their taxes to be classified as an S corp. 

How do I file a form 2553?

Business owners can download the form 2553 from the IRS website. The form can be completed online or printed out and done by hand. You cannot e-file your form 2553. Filing a form 2553 is free. There are certain situations where a fee might be charged. However, if your conditions require a fee the IRS will send the business owner a bill. 

This IRS page has the most up to date information regarding where to send your form 2553. 

When do I need to file a form 2553 by?

When to file a form 2553 depends on if a business is newly formed or existing. If your business is newly formed, you need to file by two months and 15 days after your business’s entity formation. If you miss the filing deadline, you can still submit a form 2553. However, you will be taxed as a default tax classification and not receive the benefits of a form 2553 until the next year. 

If you wish to file a form 2553 with an existing business, you need to file within two months and 15 days from the beginning of the tax year. 

Form 2553 instructions

Don’t let filing your business taxes be overwhelming. As a small business owner, filing a form 2553 can help you gain greater tax benefits and returns. There are many steps in the filing process, but we provide a detailed outline of form 2553 instructions so you don’t miss a thing. 

  1. Election Information

This first step will require you to submit things like your business’ name, address, and an EIN (Employer Identification Number). You will also need to provide all the names of the shareholders.

  1. Selection of Fiscal Tax Year

The second step of filing a form 2553 requires an owner to provide evidence and information of its tax year. 

  1. Qualified Subchapter S Trust Election

This section appoints a qualified, subchapter S trust (QSSTs). This trust is a single beneficiary to who the ownership is transferred if the original owner/shareholder passes away. You can skip this step if it doesn’t apply to you.

  1. Late Corporate Classification Election Representations

Lastly, when filing form 2553 if you missed the tax deadline you have to complete this step. Late submissions need further explanation in an attachment. 

If you submit a late form 2553 and sign the document, you are agreeing to the representations. Representations are the eligibility requirements you need to meet if you wish to receive late election relief for filing a form 2553. If you don’t meet the requirements, your late election relief will be denied. 

What happens after you file form 2553?

The IRS will let you know if your business qualified for an S corp within 90 days of filing a form 2553. 

Check stub maker makes it easy to learn about form 2553 and other subjects like it. If you have any questions, check out Check Stub Maker’s website for more information. If you need advice or guidance regarding your form 2553, seek help from a tax advisor or CPA. Tax rules and regulations can change with location, time, and industry. It is important to research what taxes your business qualifies for.