IRS Form 2553 Instructions : S Corp Tax Election

Posted: August 31, 2021 by PK in Bookkeeping

instructions for 2553

It’s also advisable to draft and sign a compensation agreement between you and your S-Corporation. So overall, your administrative costs may be $1,500 to $2,500 (maybe up to $3,000 in some cases). So you spend $3,000 to save $6,120, for a net tax savings of $3,120. You can have your LLC taxed as a C-Corporation by filing Form 8832. You can have your LLC taxed as an S-Corporation by filing Form 2553 (which we’ll discuss in this lesson). Enter the date each shareholder’s tax year ends or the tax year the shareholder is changing to.

instructions for 2553

It’s possible to file form 2553 after the deadline, however you won’t be granted S corp status until the following tax year. So if your deadline for S corp election in 2022 is March 15 and you file form 2553 on March 16, 2022, you will not be granted S corp status until 2023. It has nothing to do with state law and personal liability protection.

Filing form 2553 late

Last year I was unemployed and began trading stocks heavily, eventually making six figures. After reading your comments I fully believe it makes sense for me to create an LLC, elect S-Corp status, and pass my short-term gains through it .

To become an S corporation , you’re going to need to know all about IRS Form 2553. I would imagine S-Corp taxation is likely far easier for someone like yourself. I’m not sure about how the return would be looked at.

Who Normally Selects the S Corporation Status?

Additionally, a business filing Form 2553 must list the names and addresses of all owners/shareholders. It must include Social Security Numbers for these individuals and a signed and dated consent statement.

  • For whatever reason, Form 2553 is known as the IRS form most likely to be turned in late.
  • If you choose to fax the form, ensure that you save the original copy of the form.
  • Business owners will report their respective share of the business profit on their individual tax returns.
  • Form 2553 instructions are a necessary step to qualify as an S-corporation.
  • If the business address is also an individual’s, follow the corporation’s name with “C/O” plus that person’s name.
  • Now my question is, which is better, S-Corp or Qualified Joint Venture?

The IRS then applies FICA and income taxes to only the salary. The S corp tax classification allows business owners to be taxed as employees of an LLC. Under an S corp, the LLC business owner pays FICA and income tax on their salary. Owner-employees pay only income tax on distributions. Most small businesses benefit from being taxed as a default LLC. Small businesses that benefit from being taxed as an S corporation are ones that are able to pay the business owners a reasonable salary in addition to net annual distributions of at least $10,000.

Instructions to Form 2553

If this is not applicable to your situation, you can skip this section. S corporation shareholders can also transfer ownership very simply without terminating the corporate entity, as is the case with other business structures. Furthermore, an ownership transfer does not result in significant tax consequences or compliance with complex accounting rubric. As with an LLC, an S instructions for 2553 corporation election offers protection of your personal assets. Shareholders are not personally responsible for the business’ debts or liabilities, which means creditors can not pursue your personal assets to recover outstanding business debts. In addition, for a company to file to elect to be taxed as a corporation, all shareholders and members must agree to the election.

instructions for 2553

For additional information on your state’s handling of S corporation status, consult your accountant, your tax attorney, or your state’s Department of Revenue. Each shareholder must consent to S corporation election. Do you have questions about Form 2553 and want to speak to an expert? Post a projecttoday on ContractsCounsel and receive bids from corporate lawyers who specialize in IRS tax forms like Form 2553. Additional documents may need to be filed with local taxation authorities to be treated as an S-corporation for the purposes of state taxes.

Where to Mail Form 2553

Internal Revenue Service towards the start of the tax year. As the vehicle through which corporations can reduce the amount of taxes that they have to pay, Form 2553 is very important. The corporate tax rate is 35%, when a corporation is qualified as an S-corporation a corporation becomes a pass-through entity for the purposes of taxes. This means that the money that your company earns passes through to the shareholders’ pre-tax only to be taxed at an individual’s income tax rates. Paying taxes once as opposed to twice (as in a C-Corp).

Where to send form 2553 depends on which state your principal business, office, or agency is located in. You’ll only need to complete part II if you selected box 2 or 4 in part I, in item F.

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