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HR Glossary  /  Form 2553
Form 25534 min read
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What is Form 2553?

Form 2553, officially known as the “Election by a Small Business Corporation,” is an IRS form used by eligible corporations or limited liability companies (LLCs) to elect S Corporation tax status. By filing Form 2553, businesses can opt to be taxed as an S Corporation rather than a C Corporation, allowing them to benefit from pass-through taxation. This means that instead of paying corporate income tax, business profits and losses "pass-through" to the owners, who report them on their personal tax returns, potentially reducing double taxation.

For many small businesses, electing S Corporation status can offer tax advantages and streamline financial reporting. However, the form has specific eligibility requirements and a detailed filing process, making it essential to understand the steps involved and the implications of filing.

Electing S Corporation status can be advantageous for small business owners. Here are some of the primary benefits:

1. Pass-Through Taxation

One of the main reasons businesses file Form 2553 is to avoid double taxation. Under S Corporation status, business income, losses, deductions, and credits are passed through to shareholders and reported on their individual tax returns. This can lead to significant tax savings, as the company’s profits are taxed only once at the individual level.

2. Reduced Self-Employment Taxes

S Corporation owners who actively work in the business can classify part of their earnings as salary and part as a distribution. Only the salary portion is subject to self-employment taxes, which can result in lower overall tax liability.

3. Credibility and Professionalism

S Corporation status can enhance a business’s credibility. Being classified as an S Corporation often signals to clients, investors, and partners that the business is structured and professionally managed, which may attract more business opportunities.

Before a business can file Form 2553, it must meet the following criteria:

  • Domestic Entity: The company must be a domestic corporation or LLC.
  • Number of Shareholders: The business is limited to 100 shareholders or fewer.
  • Types of Shareholders: Shareholders must be U.S. citizens or residents, and certain entities like trusts or estates are also permitted. Corporations and partnerships cannot be shareholders.
  • Single Class of Stock: The business can issue only one class of stock, meaning all shares must confer identical rights to profits and assets.

Failure to meet these requirements may result in disqualification from S Corporation status.

Here’s a step-by-step guide to filing Form 2553:

  1. Obtain Form 2553 from the IRS You can download Form 2553 directly from the IRS website.
  2. Fill Out Basic Information (Parts I and II):In Part I, you’ll provide basic information, including the corporation’s name, address, employer identification number (EIN), and tax year. You’ll also need to indicate the date the S Corporation status should take effect.
  3. Secure Shareholder Consent: All shareholders must agree to the S Corporation election and sign Part I of the form. This consent confirms that all shareholders understand and accept the tax implications of S Corporation status.
  4. Complete Additional Parts, if Applicable: If your business is filing late, you may need to complete additional sections to request relief for a late S Corporation election. Part II covers entities that want to adopt or retain the Qualified Subchapter S Trust (QSST) election, applicable if any trust is a shareholder.
  5. File the Form with the IRS: Once completed, mail or fax Form 2553 to the IRS. The address and fax number can vary depending on your location, so consult the IRS instructions for the most accurate information. Filing must typically be done within two months and 15 days of the start of the tax year in which the S Corporation election is intended to take effect.

You can mail or fax Form 2553 to the IRS. The IRS provides specific addresses and fax numbers based on your location, so it’s essential to consult the instructions provided on the IRS website to ensure accurate delivery.

To have S Corporation status effective for the current tax year, you must file Form 2553:

  • Within 2 months and 15 days from the start of the tax year if it’s a new business.
  • If filing for a future tax year, file anytime during the tax year before the election takes effect.

Missing the deadline could result in the election being delayed to the following year unless you apply for late filing relief.

Common Mistakes to Avoid When Filing Form 2553

  • Missing the Filing Deadline: Ensure you file within the specified time frame, as late elections may not be approved without IRS relief.
  • Incomplete Information: Any missing information, such as signatures or shareholder consents, can result in rejection.
  • Ineligible Shareholders: Confirm that all shareholders meet eligibility criteria to avoid complications.
  • Incorrect Mailing Address: The IRS has different addresses for different locations, so double-check where you need to send your form.

What happens if Form 2553 is filed late?

If Form 2553 is filed after the deadline, the business may not qualify for S Corporation status for the intended tax year. However, you can request late election relief by completing Part IV, explaining the reason for the delay, and demonstrating reasonable cause for the late filing.

How can I find the correct address or fax number to submit Form 2553?

The IRS provides specific addresses and fax numbers for Form 2553 based on your location. Check the IRS instructions or website for the latest information to ensure you send it to the correct location.

Can an LLC file Form 2553?

Yes, LLCs can elect S Corporation status by filing Form 2553, provided they meet the eligibility criteria, including having 100 or fewer members and only one class of membership interests.

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