What is Form 2553?

Purpose and Importance of Form 2553

Form 2553 is a document that allows a small business to be taxed as a corporation, rather than a sole proprietorship or a partnership. It is used for filing the entity election of an unincorporated business entity to the IRS. It allows LLCs, partnership, and some non-profits to be taxed as an S-Corp.

Form 2553’s primary benefit is that it potentially lowers taxable income if there are several owners of the business. The main reason for filing Form 2553 is to elect to be treated as an S-corporation for the purpose of taxation. It is important to understand the implications of filing Form 2553 to ensure that the decision is the best for the business.

How to Correctly Complete and Submit Form 2553

Filing Form 2553 is a straightforward process however, it should be done correctly and accurately to ensure that the entity election is successful. Here is a step-by-step guide to filing Form 2553:

• Step 1: Gather the required information.
  • Name, address, and employer identification number of the business
  • Names, addresses and social security numbers of any shareholders
  • Desired tax year for the election, and tax year of the business
  • Number of shares of stock issued (for corporations only)
• Step 2: Fill out Form 2553.
• Step 3: Sign and date the form.
• Step 4: Submit the form to the IRS.

Understanding the Implications of Filing Form 2553

Filing Form 2553 has important implications to consider that could affect the business’s operations. Small business owners should understand the following:

• The business will be treated as an S-corporation for the purpose of taxation.
• The business will be subject to corporate income tax.
• The business must file a “holding period return” within 75 days of the election.
• The corporation must assign specified flexible year ends that must be adhered to.
• The business will have restrictions on ownership shares.
• The corporation will be required to adhere to corporate formalities.