Form 2553: Essentials for changing your business to an S Corp
3 min read
January 09, 2024 • Block Advisors
Did you know your business structure can change at any time? So, even if you are an established business, you have the ability to change your structure to best suit your financial and tax goals. For all, your business classification directly affects the amount of tax your business and you, the owner, pays.
What’s one way you do this? Changing your company to an S corporation may take some thought, but once you’re ready to do it, Form 2553 is what you’ll file with the Internal Revenue Service.
A corporation or other entity eligible to be treated as a corporation files Form 2553 to make an election to be an S corporation.
An S corporation elects to pass income, deductions, losses, and credits to its shareholders for federal tax purposes. Then, in turn, S corporation shareholders report the income and losses on their personal tax return and are assessed tax on their personal income tax return.
Many small business owners choose this business entity because it prevents owners from double tax on income at the corporate and then shareholder level. To qualify for S corporation status, you must meet the following conditions:
- Be a domestic corporation
- Have only allowable shareholders (including individuals, estates, and certain trusts)
- Have less than 100 shareholders
- Have only one class of stock
- Not be an ineligible corporation
Who uses IRS Form 2553?
A corporation or eligible entity treated as a corporation files IRS Form 2553.
How is tax Form 2553 used?
Using tax form 2553, a qualifying business can make the S Corporation election under section 1362(a).
What actions should you take before filing tax Form 2553?
Before you file tax Form 2553, you should create your business’ by-laws, articles of incorporation, and other legal documents necessary to form and operate a business. Each form varies from state to state. Check your state’s Department of Revenue for more information.
What happens if you don’t fill out tax Form 2553?
Here’s where the IRS will choose a default entity structure for you. If you don’t complete Form 2553, the IRS will categorize your business as a C corporation.
What’s included on the form?
Form 2553 has four parts. To get a feel for what the form asks for, we’ve created an outline:
- The first section requires you to fill out general business information (like the formal name, FEIN, effective date of the S Corp election, shareholder information, and a form field for a signature.
- The second part has a form field to select the fiscal year you want to take the election.
- The third part has information about trusts and can be skipped if you’re not making an election for a qualified Subchapter S Trust.
- Part four only needs to be completed if you’re filing late.
Where should you send the form?
If you are completing your taxes yourself, you can download, print, and send Form 2553 to the IRS. You can’t e-file this form. Of course, if you’re filing with Block Advisors, we’ll take care of completing the form details with a little input from you—no need to stress over the IRS Form 2553 details.
When is the Form 2553 deadline?
The form should be filed to the IRS before the 16th day of the third month of your business’ tax year. Or before the 15th day in the second month of your business’ tax year if the year is 2.5 months or less. You can file the form at any time in the previous tax year for the subsequent tax year you want the election to take effect.