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Instructions for Form 2553
If you have concerns about how to fill out Form 2553 for the IRS, you’re not alone. We share the details on how to do it here.
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For small business owners of LLCs and corporations out there, you have some flexibility when it comes to your tax classification. If you want to file your taxes as an S corporation, then you must fill out Form 2553. IRS rules require it to qualify to be taxed as an S corporation. What is IRS Form 2553, and what are the instructions to Form 2553? We take a deep dive look into Form 2553 for LLC below.
What is IRS Form 2553?
Form 2553 is a tax form used by LLC and C corporation owners to elect to be treated as an S corporation for federal income tax purposes. By making this election, a C corporation can avoid double taxation on corporate income. An LLC may be able to pay less in self-employment taxes by filing as an S corp. Our “What is an S Corporation?” page explains how this works.
The form is filed with the IRS and must be signed by all the owners of the business. Form 2553 should be filed no more than 2 months and 15 days after the start of the tax year the election is to take effect, or any time during the tax year preceding the tax year it is to take effect.
How to Fill out Form 2553
Form 2553 is used by small business corporations and LLCs to elect to be taxed under Subchapter S of the Internal Revenue Code.
To fill out Form 2553, you’ll need to provide the following information:
- The name and employer identification number (EIN) of the corporation.
- The date the corporation or LLC was incorporated or organized.
- The address of the business’s principal office and the address of the business’s mailing office.
- The names and addresses of all the corporation’s officers or LLC members.
- The date the election is effective.
- The names and addresses of all the shareholders of the corporation, the number of shares held by each, and the date(s) the stock was acquired. An LLC will instead enter the names and addresses of the LLC members, their ownership percentages, and the date(s) the ownership was acquired.
- A statement that the corporation meets the requirements for an S corporation, including the requirement that it has no more than 100 shareholders or members and that all shareholders or members are individuals, certain types of trusts, or estates of such individuals.
- The signature and title of the officer or other authorized representative of the business.
It’s important to note that the election must be made by the 15th day of the 3rd month of the tax year in which the election is to be effective, or by the 15th day of the 3rd month of the tax year prior to the tax year in which the election is to be effective if the corporation is not in existence on the 15th day of the 3rd month of the tax year in which the election is to be effective.
You can find the 2553 IRS Form and instructions on the IRS website. It’s advisable to consult with a tax professional or accountant to ensure that you’re filling out the form correctly and to understand the tax implications of electing to be taxed as an S corporation.
How to File Form 2553
2553 IRS Form is used to elect S corporation status for a small business. To file 2553 Form, you’ll need to complete the following steps:
- Obtain a copy of Form 2553 from the IRS website or by calling the IRS at 1-800-829-3676.
- Gather all of the necessary information, including the business’s name, address, and EIN, as well as the names and addresses of all shareholders or members and the number of shares each shareholder owns or the amount of ownership each LLC member owns.
- Complete the form, including providing the name and address of the officer or LLC member who will sign the form, and the date on which the election is to become effective.
- Sign and date the form, and have it signed and dated by all shareholders or LLC members.
- Send the completed form to the IRS, along with any required attachments or supporting documentation.
- File the form within 2 months and 15 days after the beginning of the tax year the election is to take effect.
It’s always recommended to consult with a tax professional before filing any form with the IRS.
When should form 2553 be filed?
Form 2553 should be filed within 2 months and 15 days of the beginning of the tax year for which the election is to be effective. This means that if the tax year begins on January 1st, 2553 Form IRS must be filed by March 15th. If the election is to be made for a short tax year, it must be filed within 2 months and 15 days after the beginning of the short tax year.
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Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.
IRS Form 2553 FAQs
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An LLC only needs to file Form 2553 with the IRS in order to be taxed as an S corporation. Form 2553 is used to make an election for S corporation status, which, for an LLC, can sometimes lower the amount of taxes the members will pay in taxes for Social Security and Medicare. However, whether or not an LLC needs to file Form 2553 depends on the specific circumstances of the company and should be discussed with a tax professional.
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Yes, you can file IRS Form 2553 online through the IRS e-file system. This system, called the IRS e-file, allows taxpayers to file their forms electronically using tax preparation software or through a tax professional.
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LLCs and S corps are both considered pass-through entities, meaning that the business itself does not pay taxes on its income. Instead, the profits and losses are passed through to the individual owners, who report them on their personal tax returns. This is an contrast to a C corporation, which taxes the business’s profits twice, once at the business level and again when those profits are distributed to the individual owners.
Even though a traditional LLC already has pass-through taxation, it could still benefit from electing S corp status. It takes a bit of explanation, but it could mean saving thousands of dollars.
The members of a standard LLC are considered self-employed. They’re compensated by receiving their share of profits from the LLC, but they can’t be employed by the LLC. Being self-employed means paying self-employment taxes (the taxes earmarked for Social Security and Medicare, which add up to 15.3%) on all profits they receive from the LLC. This is more than the taxes they’d pay when working for someone else because their employer would pay half of them.
When the members elect S corp status, though, they can be compensated in two ways, by receiving their share of the profits and by being paid as an employee. Once they do that, they only pay self-employment taxes on their salary and not the profits they receive. (Of course, this is only for self-employment taxes; LLC members still must pay income and other applicable taxes on their profits.) This can add up to quite a lot for certain profitable LLCs.
One caveat to this is that the IRS expects you to pay yourself a “reasonable salary” as an employee of the LLC. Otherwise, you could pay yourself an annual salary of $1 and avoid contributing anything to Social Security and Medicare. The IRS considers “reasonable” to be something similar to what others in your field are earning.
It’s best to consult a tax professional or attorney to determine which business structure is best for your specific situation.
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As we explained above, members of certain LLCs can save on taxes by being employed by the LLC. But a traditional LLC can’t employ its owners with an S corp election.
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