If the election is made, the subsidiary’s assets, liabilities, and items of income, deduction, and credit generally are treated as those of the parent. For details, see Form 8869, Qualified Subchapter S Subsidiary Election. In most cases, you need the consent of all shareholders who own stock in the corporation on the day the election is made, with some exceptions, as outlined in the instructions. The purpose of Form 2553 is to allow certain small businesses to choose to be taxed as an S corporation. Generally, you must file IRS Form 2553 no later than 2 months and 15 days beyond the date of S corp election. Preparing IRS Form 2553 and sending it to the IRS is the first step towards reclassifying your business, but remember that all shareholders must agree with this decision.
- To be an S corporation beginning with its short tax year, the corporation must file Form 2553 during the period that begins November 8 and ends January 22.
- For details, see Tax and Payments in the Instructions for Form 1120-S, U.S.
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- And, if the LLC owner(s) would like to forfeit salary for any reason, they could be subject to fines by the IRS.
- Depending on the reason you provide, the IRS may grant relief.
- The section doesn’t define a small business, while the IRS assigns small business designations to companies based on individual tax law statutes.
- If the corporation (entity) hasn’t received its EIN by the time the return is due, enter “Applied For” and the date the EIN was applied in the space for the EIN.
Form 2553 must be filed no later than two months and 15 days after the beginning of the tax year the election is to take effect. For new corporations, this is typically the date of incorporation. Are you a small business owner looking to elect your business as an S-corporation? This comprehensive guide on IRS Form 2553 is essential for you.
Item P
And, if the LLC owner(s) would like to forfeit salary for any reason, they could be subject to fines by the IRS. If those profits are distributed form 2553 instructions to shareholders, each shareholder pays personal income tax on the amount they receive. A small business that wants to avoid this “double taxation” of company profits can consider filing Form 2553 and electing to be taxed as an S-corp instead. If a single member limited liability company (LLC) owns the corporation’s stock, and the LLC is treated as a disregarded entity for federal income tax purposes, enter the owner’s name and address. We’ll walk you through filling out Form 2553, which businesses and other eligible entities use to elect to pay taxes as an S corporation (S-corp).
Is an S corp an LLC?
S corporations do not pay corporate taxes and are allowed up to 100 shareholders, which can attract investors. Part IV of Form 2553 details representations that must be included if your corporation is requesting relief from a late election. You can ignore reading this page if you are filing Form 2553 within the deadline. Enter the corporation’s (entity’s) true name as stated in the corporate charter or other legal document creating it. If the corporation’s (entity’s) mailing address is the same as someone else’s, such as a shareholder’s, enter “C/O” and this person’s name following the name of the corporation (entity).
- Form 2553 is used by C-corporations and limited liability companies (LLCs) that want to file taxes as an S-corp.
- A corporation or other entity eligible to elect to be treated as a corporation may elect to be an S corporation only if it meets all the following tests.
- If neither of those applies to you, you’ll then want to move on to sections Q or R depending on if you’re using another business purpose for a unique fiscal year (Q) or Section 444 (R).
- Here at H&S Accounting & Tax Services, our customers rave about our uncomplicated, personalized approach to even the most complex tax situations, including the late election filing.
- With an S corp, owners pay personal income tax and self-employment tax on a predetermined salary.
- Once approved, the election remains valid indefinitely, so you don’t have to file Form 2553 annually.
IRS Form 2553 Filing Deadline
To make this election, you’ll have to fill out a four-page, four-part form. Once completed, you’ll be notified roughly 60 days after you filed whether your election was accepted or denied. Relief must be requested within 3 years and 75 days of the effective date entered on line E of Form 2553. LLC owners typically have a different reason for filing a Form 2553 S-corp election. Under the default LLC tax structure, owners who work in the business are self-employed and report their share of LLC income and expenses on their personal tax returns. They also pay self-employment (Medicare and Social Security) taxes on the full amount of the LLC’s profits.
LLC Electing S Corp Status
After completing the form, you can send original copies of your filed election to the IRS by mail or fax. Part I must be completed by all businesses electing to be treated as an S corporation. You may file this form by fax or mail to the IRS service office assigned to your state of incorporation. In the rest of Part I, you’ll enter the following information for each shareholder required to consent to this election. All shareholders must consent to the S-corp election, and there are limits on the number and type of shareholders allowed. The role and responsibilities of shareholders in this process are critical.
What’s better, an LLC or an S-corp?
Because the corporation had a prior tax year, it can make the election at any time during that prior tax year. A corporation or other entity eligible to elect to be treated as a corporation must use Form 2553 to make an election under section 1362(a) to be an S corporation. Form 2553 alone is sufficient to change the LLC’s tax classification to an S-corporation. Below, we’ll explain why Form 8832 is usually unnecessary in this case, how the process works, and everything else you need to know about these tax election forms. Section I asks for your corporation’s identifying details, the election you are making, and the effective date of the election.
Part I – Election Information
After filing, wait for the IRS to approve or deny your request. You don’t need this section if you’re filing within the deadline. Wet signature of income beneficiary or your signature and title or that of any other legal representative. If you intend to make a 444-section election, fill out this part, and agree to adopt or change to a tax year ending December 31 if necessary.