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Unraveling the Complexity of Form 2553: Making the S Corporation Election

Key highlights

  • Recognize the meaning of form 2553 and its purpose.
  • Determine who must submit Form 2553.
  • Find out how to file Form 2553 and the numerous procedures involved.
  • Understand the various items needed to complete Form 2553.
  • Recognize the significance of meeting deadlines.
  • Learn startup advice by filling out form 2553.

What is Form 2553?

Company owners must comprehend the tremendous significance attached to a seemingly innocuous document known as Form 2553 as they set out to incorporate their companies. Despite its modest look, this simple piece of paper has tremendous power that opens up a wide range of profitable prospects for businesses to benefit from the world of S-corporations and take advantage of its numerous advantages.

Form 2553 acts as a gateway, luring companies into a world where tax obligations are reduced, and benefits abound, thanks to its uncanny ability to pave the road towards S-corporation taxation. Entrepreneurs who choose S-corporation taxation can enjoy the benefits of lower self-employment taxes, increased tax flexibility, and the ability to maximize earnings through significant tax savings.

The importance or benefits of filing

The benefits of the correct filing of Form 2553 are numerous, including a wide range of advantages, from tax savings to limited liability protection. By completing this form, firms can take advantage of pass-through taxes. This system enables income and losses to be dispersed among shareholders and recorded on their tax returns. In addition, the form creates the company as a separate legal entity, protecting stockholders from liabilities. As a result, this promotes a climate of less risk and increased financial stability for these stakeholders.

Any repercussions of not filing the form

Failure to submit Form 2553 may have severe and far-reaching implications. In such sad circumstances, the company would be classified as a C-corporation, forfeiting the priceless benefits of S-corporation taxes. Additionally, the corporation would unintentionally renounce the limited liability protection as a safeguard, eventually endangering the shareholders' assets. It is impossible to overestimate the importance of Form 2553 when establishing firms. It gives enterprises significant advantages, assuring favorable taxation and protecting personal assets. However, failing to file it can have serious repercussions, from losing favorable tax treatment to having more personal culpability. Entrepreneurs should thus understand how crucial it is to follow this important document to maximize their companies' potential success and security.

Who needs to file form 2553?

Understanding the individuals and organizations that fall under Form 2553's purview is crucial to appreciate the form's purpose fully. To elect S-corporation status for tax reasons, corporations often use Form 2553. Not all companies, nevertheless, can file this form since they don't match the requirements. The company structure, the sort of money generated, and the income range are only a few variables that affect eligibility.

Types of business structures, income types, and income range or threshold for eligibility

Let's start by exploring the various organizational models for businesses. S-corporation taxation is an option for certain corporations, partnerships, limited liability companies (LLCs), and sole proprietorships. The choice to file Form 2553 is based on each organization's requirements and goals, and each structure has its own set of benefits and drawbacks. 

There are forms of income that are eligible for S-corporation treatment right now. Certain sources of revenue are barred from eligibility. However, the majority of conventional company income is. Passive income is one example governed by several tax laws, such as rental income, dividends, and interest. Additionally, there may be restrictions on a company's ability to get S-corporation status if it operates in a certain sector, such as banking, insurance, or foreign commerce.

Types of businesses and incomes NOT included

The requirements for submitting Form 2553 may only apply to some businesses and incomes. Different forms of revenue and particular business formats are excluded. C-corporations, some professional service corporations, and partnerships with more than 100 shareholders, for example, are not permitted to file this form. Additionally, S-corporation taxes cannot be chosen by companies having foreign shareholders, non-resident alien stockholders, or corporations controlled by other corporations. Passive income streams, including rental income, dividends, and interest, do not qualify as exclusions from income to determine eligibility for an S-corporation, as was previously noted. Similarly, royalties, some forms of investment income, and capital gains from asset sales are not considered qualifying income to file Form 2553.

How to file form 2553

To qualify as an S-corporation for tax purposes, a firm must submit Form 2553. However, the procedure can be complicated, so it's essential to have a proper grasp of the data and paperwork required for successful submission. The key components to consider while filling out Form 2553 will be discussed in this guidance.

The step-by-step process of filing the form

First and foremost, it's critical to comprehend the requirements for submitting Form 2553. To be eligible for S-corporation treatment, a business must adhere to certain guidelines regarding its organizational design, source of income, and income distribution range. Before starting the filing procedure, check to see if your company satisfies the IRS guidelines' eligibility requirements.

You can start the Form 2553 submission procedure after verifying your eligibility. The first step is to get the form and fill it out; it is available on the IRS website in PDF format. Your business structure, tax year, and the day the S-corporation election became effective must all be disclosed.

The next important step is to provide information about the stockholders in your company. This comprises a list of all shareholders' names and addresses, a breakdown of the number of shares each shareholder has, and information about the kind of stock each shareholder owns. You must also provide information on the overall number of shareholders and the number of shares the business has issued.

It's vital to remember that S-corporations can only have a maximum of 100 shareholders. It is essential to adhere to this rule in order to provide shareholder information.

You must provide information about the corporation's earnings and include a copy of its tax return from the tax year before it made the S-corporation election. You must also have details about the corporation's accounting system, inventories, and depreciation.

Ensuring you provide the necessary documents is essential to filing Form 2553. Copies of the corporation's bylaws, articles of formation, and any pertinent changes should be included. Each shareholder must also present A certification that has approved the S-corporation election.

Form 2553 instructions

3d illustration of pen putting blue ticks on paper

Comprehending all of the Internal Revenue Service (IRS)'s (the filing parties) requirements is crucial before submitting Form 2553. These instructions are a helpful guide that will walk you through the procedure and provide all the necessary facts, documentation, and specifics to finish the form. Gather the essential data and paperwork. The legal name of the company or other business applying for S-corporation status must coincide with the name on the Articles of Incorporation or other organizational document submitted to the appropriate state authorities. Include the business's designated employment identification number (EIN) as well. Ensure you are prepared with the company's address, including the street address, city, state, and zip code. This information will be used as the mailing address for contact with the IRS.

Include the stockholders' full names, postal addresses, and tax identification numbers (such as social security or tax identification numbers or EINs). The IRS can confirm eligibility and guarantee compliance with S-corporation rules thanks to this extensive list.

Remember to have the name and position of an authorized corporate official, director, or shareholder on the document. This signature confirms that the person submitting the form can do so on the company's or other organization's behalf.

Observe the filing deadlines. Form 2553 must typically be submitted by two months and fifteen days following the start of the corporation's tax year or at any point during the tax year immediately prior. The S-corporation election may only be approved or accepted on time if certain dates are included.

Filing deadlines

Respecting the required timeframes while submitting Form 2553 is crucial. Your S-corporation election will be handled quickly and with no fines if submitted on time, which also helps prevent any unforeseen delays. We'll now look at the Form 2553 filing deadlines.

According to general guidelines, Form 2553 must be submitted by the 16th day of the third month of the corporation's tax year. This usually involves submitting the form by March 15th for corporations with a calendar year. Remember that a few variances and exclusions might apply to your tax year and situation.

If you've just established your business and wish to choose S-corporation status for the current tax year, you must submit Form 2553 within two months and fifteen days following the start of that tax year. For instance, you must submit the form by March 15th if your corporation's tax year begins on January 1st.

Remember that the IRS may only accept your S-corporation election if Form 2553 is filed on time. However, it's always recommended to submit by the deadlines to prevent any potential issues. In rare circumstances, the IRS may assist with late files.

Filing cost for form 2553

Billie dollar with business chart

It's critical to be mindful of potential charges when deciding whether to file Form 2553 to adopt S-corporation status. Although there isn't a direct filing charge for the form itself, certain costs could pop up during the filing process. Let's examine the probable Form 2553 filing costs.

The professional fee charged by tax consultants or certified public accountants (CPAs) who can help you prepare and file Form 2553 is one expense to take into account. The amount these experts charge varies depending on the intricacy of your company's structure and the quality of assistance needed. To locate an appropriate solution, it is essential to evaluate the costs quoted by several specialists and request estimates from each.

Additionally, software or service costs can be involved with using those tools if you decide to submit Form 2553 using tax preparation software or online services. These costs may change depending on the supplier and the kind of support or services provided. Before moving further, evaluating the terms and pricing for these services is crucial.

The probable necessity for legal counsel is another expense factor. Businesses may occasionally need legal advice to guarantee compliance with specific rules or to deal with challenging legal issues relating to the S-corporation election. Including any additional costs associated with hiring a tax law specialist in your budget is vital if necessary.

2553 tax form: Tips for startups

Form 2553 is essential in setting up the proper tax structure for companies thinking about choosing S-corporation status. It's crucial to remember a few suggestions to ensure a simple and profitable filing procedure. Here are some essential things entrepreneurs can remember while filling out Form 2553.

It is essential to first comprehend the qualifying requirements. Make that your firm satisfies the prerequisites for S-corporation status, such as having a legal, organizational structure and adhering to the shareholder and ownership constraints. Study the IRS regulations, and if necessary, seek advice from a tax expert to ensure your eligibility.

When submitting Form 2553 as a startup, timing is crucial. The paperwork should be submitted as soon as your company is incorporated, if at all feasible. By doing this, you can ensure that your S-corporation status is in place at the start of the tax year and that you get the most out of the accompanying tax advantages.

The key is accurate and thorough documentation. Give detailed information about shareholders, including their names, addresses, and ownership percentages. Include any essential papers, such as the bylaws, articles of incorporation, and modifications. Ensure the paperwork is filled out entirely and all shareholders have signed it.


Form 2553 is crucial for startups seeking S-corporation status. File early for maximum tax advantages. Comply with IRS guidelines, provide accurate info and documentation, and seek professional guidance. Maintained meticulous record-keeping and updated tax strategies. Tailor the process to your startup's needs. By following these guidelines, startups optimize their tax position and build a strong foundation for financial growth and success. Consult professionals as needed.

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Note: Our content is for general information purposes only. Levy does not provide legal, accounting, or certified expert advice. Consult a lawyer, CPA, or other professional for such services.

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