The IRS has so many different filing forms that it is not always easy to keep track of what is what. However, it is very important because filing errors can result in more taxes owed or potential fines and penalties.
Have you been told you need to file the IRS Form 2553? Learn everything you need to know about IRS Form 2553 and how to avoid filing errors with it.
IRS Form 2553, Election by a Small Business Corporation, is a form used to designate your organization as an S corporation. A corporation or other eligible entity makes an election to become an SC corporation under section 1362(a).
Corporations are treated as C corporations unless they make the correct steps to become an S Corp.
Why would you want to become an S Corp over a C Corp? S corporations have net taxable income that is taxed to the shareholders of the corporation, and not the actual company or organization. Consequently, S Corps are able to avoid the “double taxation” imposed on C Corps.
Form 2553 is mandatory if an entity wishes to elect “S corporation” status under the Internal Revenue Code.
In order to become a legitimate S Corp, you need to meet ALL of the following criteria:
As with anything in life, there are pros and cons to becoming an S Corp vs. C Corp.
The advantages:
● It Avoids “double taxation” resulting in less tax burden.
● It Reduces liability with a shield comparable to a limited liability company.
● It Provides owners with flow-through taxation.
The disadvantages:
● It imposes a limitation on more advanced capital structures.
● It creates a restriction on who can own shares in the corporation.
● It creates an ongoing eligibility requirement.
If you meet all of the criteria for eligibility and want to elect to become an S Corp, then you must complete and submit IRS Form 2553.
In order to remain compliant with the IRS, you must file Form 2553 on time. The IRS form must be filed no later than two months and 15 days after the beginning of the tax year that the S Corp election occurs to take effect.
*If you are already an established company, yet want to change the status of your entity, then Form 2553 needs to get filed at any time during the tax year preceding the tax year the status change went into effect.
Did you miss the deadline? Thankfully, relief is available for late elections, but only if certain conditions are met. You will want to make sure that:
● The corporation intended to be classified as an S Corp as of the intended effective date of the election.
● The corporation only failed to qualify as an S Corp because Form 2553 was not filed on time and for no other reason.
● The corporation had reasonable cause for missing the required deadline.
● The organization provided statements reflecting that every shareholder reported their income in a manner consistent with the company’s intention to file as an S Corp.
If all of the above conditions are met, you may receive a grace period from the IRS and still apply for S Corp status.
No one likes to make filing errors with the IRS. Unfortunately, the agency is not forgiving when it comes to dealing with tax errors. It is why many corporations turn to the assistance of a qualified tax professional.
Levy & Associates has assisted countless corporations to navigate the narrow guidelines of creating an S Corp entity. We can help you complete the appropriate IRS forms like Form 2335, as well as reduce taxes owed that are the result of filing errors.
Let us help you with your taxes and forms. Reach out to us at 800-TAX-LEVY, or visit www.www.levytaxhelp.com for more information.
Levy & Associates is available for free initial consultations. We’re happy to answer any questions you have about the audit process or address any concerns about your specific situation.
There’s never a good time to be audited, and the time-consuming process will take away from your business or family if you try to face it alone. Let us handle and coordinate communication, so you can return to your daily life.