IRS Form 2553 is the official document that a small business corporation files with the Internal Revenue Service to elect S corporation status. The IRS requires this form to ensure compliance with tax laws and to accurately calculate and collect the correct amount of tax. This particular election allows the corporation to pass profits and losses directly to the owners' personal income without being subject to corporate income tax first, possibly providing tax savings compared to business as a C corporation.

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Understanding What Small Business Must File IRS Form 2553

Any domestic corporation or other entity eligible who desires to be taxed as an S corp must file IRS Form 2553. By making this election, the entity intends to be classified as an S corporation, made effective by the date entered on the form.

When Should I File Form 2553?

Generally, tax form 2553 must be submitted by the due date to ensure the entity qualifies as an S corporation from the desired effective date. If submitting late, relief may be available under certain conditions.

Form 2553 Instructions: How to Complete it

Business owners who qualify for S corporation status should submit and complete Form 2553, Election by a Small Business Corporation. Visit the IRS website to download or print form 2553. Simply follow the clear, detailed step-by-step guide below.

Part I: Election Information 

1. Name and Address: Enter the exact legal name and address of the eligible entity, which should match the name and address on record with the IRS.
2. Employer Identification Number (EIN): Enter the corporation's EIN.
3. Date of Incorporation: Provide the date the corporation was incorporated under state law. 
4. State of Incorporation: This refers to the state where the corporation was legally incorporated. 
5. Election Date: Indicate the date you want the S corporation election to take effect. Generally, this would be the beginning of the tax year for which you want tax treatment as an S corporation.
6. Principal Business Activity Code Number: Refer to the NAICS code that best fits the corporation's primary business activity.
7. Shareholder Information: Provide the following information for all shareholders: their address, the number of shares owned, and date of acquisition of said shares. Note that each shareholder must consent to the S corporation election. 

Part II: Selection of Fiscal Year 

1. Calendar Year: Check box P if the S corporation will use a calendar year (January 1 to December 31).
2. Fiscal Year: Complete lines Q, R, and S if the S corp will use a fiscal year. 

Part III: Qualified Subchapter S Trust (QSST) Election (if applicable) 

QSST Information: You need only complete this part if the corporation has a shareholder that is a QSST.

Signature and Date 

1. Authorized Officer: A signature and date are required by an authorized officer from the corporation.
2. Title: Provide the title of the signing officer.

Attachments 

1. Shareholder Consent Statements: Each shareholder shall indicate their consent to S corporation election by signing either the Form or providing a separate statement.
2. Late Election Relief: If applicable, filing for late election relief, include all required documentation, such as explanations for the delay and statements from shareholders. 

Filing the Form

1. Where to File: Print and mail the completed Form 2553 to the appropriate IRS Service Center based on the corporation's location. The IRS provides a list of addresses on its website or in the Form 2553 instructions.
2. Private Delivery Services: You can use private delivery services designated by the IRS to file this election.

Mistakes to Avoid When Submitting Form 2553

When preparing Form 2553, please note that there are signature requirements. The form must be signed and dated by an authorized corporate officer, such as the president, vice president, or other qualifying representative. If the form is not signed, it will not be considered timely filed.

Lastly, note the 15th day rule, which is that the form must be submitted by March 15th.

What Happens After I File Tax Form 2553?

After filing, the IRS will perform a review and notify you of acceptance. If successfully accepted, your will then need to file Form 1120-S annually for your corporation.  

1. Notification from the IRS: The notification of acceptance or non-acceptance will come from the IRS service center. You should receive this response within 60 days of filing.
2. Annual Filing Requirements: Once your form has been accepted, your corporation must file Form 1120-S, U.S. Income Tax Return for an S Corporation, annually.
3. Future Action for S Corp Election: After S corp status is approved, it will be effective until it is terminated or revoked.