IRS Form 2553 Script
Hi everyone, I'm Priyanka Prakash, senior staff writer for Fundera.
Today I'll show you how to fill out IRS Form 2553: Election by a Small Business Corporation.
The most common use for this form is for a limited liability company (LLC) or C-corp
that wants to be taxed as an S-corporation.
If you correctly complete and submit this form on time, the IRS will treat your business
as an S-corp for federal income tax purposes.
This means the profits and losses of your business will pass through to the owners’
personal tax returns, and the business itself will not pay an income tax.
Now, before you even fill out this form, you should make sure that you meet the requirements
for electing S-corp tax status.
There's a long list of requirements that you can find in the IRS guide that accompanies
this form, but the main requirements are that your company can have no more than 100 shareholders,
only one class of stock, and no nonresident alien shareholders.
Okay, let's get to the form now.
Part 1: Election Information starts with some basic business information, such as your business
name, address, and EIN number.
If you currently have an LLC which does not have an EIN number, you'll need to apply for
one first using IRS Form SS-4 before you fill out this form, I'm going to provide this information
for a sample business called ABC Bakery, which is an LLC, and I'll assume that ABC Bakery
does have an EIN already.
Next, provide the date and state of incorporation.
That wording makes sense if you're currently a C-corp, but it's a little misleading if
you're filling out this form as an LLC because technically you're not an incorporated business.
However, what this is getting at is simply the date that you registered your business
with the state, or filed your articles of organization or articles of incorporation.
In this case, let's say that ABC Bakery registered with the state on January 5, 2018, and they
registered in New York state.
After applying for an EIN, if your business changed its name or address, you would check
off the applicable box in item D. If not, skip this item, and move on to item E. Item
E is important because you'll need to provide the tax year in which your S-corp election
is to take effect.
If you meet all the requirements for an S-corp, you should file Form 2553 no later than two
months and 15 days after the start of the tax year in which you want your election to
take effect.
That is March 15 for most businesses that follow a calendar tax year.
You can also submit the form at any time during the preceding tax year.
Let's say that's the case for ABC Bakery LLC, and that the owner wants the S-corp election
to take effect in 2020.
In item F, choose your business’s tax year, which for most companies will just be an ordinary
January 1 to December 31 calendar tax year.
You might choose a fiscal year if you have a seasonal business in which the tax year
ends on a day other than December 31.
For Item G, remember that you can't have more than 100 shareholders in an S-corporation.
However, you can treat spouses or members of the same family
as one shareholder for the purposes of this count.
If that's how you'll be counting certain shareholders, check off this box next to item G.
In item H, provide the name and title of the business contact person.
For most of you watching this video, that's probably you who is filling out the form.
In our example, will say that the business contact person is Betty Business, who's the
CEO of ABC Bakery.
You should also provide the phone number.
Item I is where you would provide an explanation if you are filing Form 2553 after the deadline.
In order for the IRS to accept your late-filed Form 2553, you have to provide reasonable
cause for the delay.
For example, maybe you did not understand the rules about the deadlines or your accountant
failed to file on time.
The IRS will often accept such explanations as reasonable cause from a small business.
At the bottom of the form, don't forget to sign, date, and provide the title of the officer
filling out the form.
You can't sign and date until you print out the form, so I'm going to leave that blank
for now and just provide Betty Business’s title.
Before you continue, make sure that on the next page, you provide your business name
and EIN again at the top, so the IRS doesn't lose any of your paperwork.
In this table, you'll enter the name and address of each shareholder who's required to consent
to your S-corp election.
Your corporate bylaws or operating agreement should identify who is required to provide
consent.
But in most cases, you'll need approval from all current shareholders or owners of the
business, and they'll need to sign the form in this section.
If you need more rows than what is provided on this form, simply print out additional
copies of this page.
Most of you watching this video will probably just fill out a few of these lines.
Now, if you're structured as an LLC, you don't have shareholders.
You have members of the business, and you would provide their names and percentage of
ownership instead of share information in this section.
In this case, I'm going to assume that Betty and her business partner, Chris Corporate,
are the only two owners of ABC Bakery and they have a 60/40 ownership split.
Here, I'll provide information for both of them.
I'll assume that Betty Business acquired her percentage of ownership on the day that ABC
Bakery was formed, and I'm going to provide her social security number in column M. This
last column is most important if the shareholder or owner is a company.
If it's an individual, the tax year almost always ends on December 31.
And that's it for the table in this case.
You'd also want to remember to have both Betty and Chris sign here.
Part 2 of Form 2553 applies to businesses that follow a fiscal tax year.
You'd only fill out this section if you chose to check off either box 2 or a box 4 in item
F of Part 1.
This might apply to seasonal businesses or to businesses whose primary shareholders follow
a fiscal tax year.
But most of you watching this video will follow a calendar tax here, and you can skip this
part.
Part 3 of Form 2553 applies only to businesses that are electing Qualified Subchapter S Trust
Election under Section 1361(d)(2) of the federal tax code.
In order to qualify for this election, you must have a trust which is a qualified shareholder
of your business.
In addition, corporate stock must have been transferred to the trust on or before the
date on which the business makes it selection to be treated as an S-corp.
Most of you watching this video will skip Part 3.
This part is more applicable to larger companies who have trusts as shareholders.
Lastly, we come to Part 4 as long as you're filling out this form on time you can skip
Part 4.
If you missed the deadline, however, then you're agreeing to each of the representations
that's listed in this part.
And that's it for Form 2553, you can mail or fax the form to the IRS as indicated for
your state on the cover page of the form.
There's no fee to file Form 2553, and the IRS should notify you within two months whether
your S-corp tax election was accepted or not.
Now that you are an S-corp for tax purposes, you'll eventually need to file Form 1120S,
which is the informational tax return for S-corps, and you'll need to provide a Schedule
K-1 to your shareholders.
Keep in mind that you might also need to fill out additional paperwork with your state in
order to be treated as an S-corp for state tax purposes.
If you'd like additional help in filing Form 2553, we suggest using a legal help service
such as LegalZoom.
When you form your company on LegalZoom, you'll be prompted to specify whether you would like
to elect S-corporation tax status.
If you choose yes, LegalZoom will file Form 2553 on your behalf for an additional fee.
We hope this was helpful in filling out Form 2553.
Head over to https://fundera.com/blog for more small business information, and subscribe
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Thank you for watching everyone.