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Form 2553 is the Election by a Small Business Corporation form, which establishes a sole proprietorship or partnership as an S-corp. Becoming an S-corp will change how you file your taxes and potentially increase your tax return. IRS forms for businesses are devised to let companies report various financial information to the Internal Revenue Service.
- The form is not mailed to the IRS but retained by the employer.
- The form is organized into 4 sections for those opting for S corporation election.
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- S corp shareholders are not considered self-employed workers, and do not have to pay self-employment taxes on S corp earnings.
The IRS released a new version of W-8BEN in February 2014 that required corporations to sign a W-8BEN-E form instead. When deciding to move from one category of business to another, business owners need to know the difference between them. Thus, C-category companies pay a fixed corporate tax rate, and shareholders pay taxes on dividends. As for the S-category, such a company is exempt from such payments.
Your Best Solution to Fill in IRS Form 2553
100 shareholders requirementSpouses (and their estates) are automatically treated as a single shareholder. If you operate a small business or are self-employed, you may want to establish your business as a corporation. In the United States, you have the option of becoming an S corporation (S-corp) which allows for pass-through taxation and shareholder dividends.
- IRS Form 2553 is critical to a business if it hopes to be treated as an S corporation.
- Any fringe benefits extended, such as reimbursed expenses or a company vehicle, can also be taxed at a personal level.
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- If based on one of the natural business year tests, provide the required receipts.
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- The S corporation election must typically be made by the fifteenth day of the third month of the tax year for which the election is intended to be effective, or at any time during the year immediately preceding the tax year.
This business structure can be beneficial for many companies, as it helps eliminate double taxation and self-employment tax for business owners. https://kelleysbookkeeping.com/ S corporation election also offers liability protection for shareholders. Instead, company profits “pass through” to the owners (shareholders).
Individual forms
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Examples of reportable transactions are amounts paid to a non-corporate independent contractor for services (in IRS terminology, such payments are nonemployee compensation). Form 2553 is due on the 15th day of the 3rd month of your tax year (generally, the 75th day of the tax year). If approved, your S corporation status is effective for 12 months after it is filed. Additionally, it is retroactive within the 75 days prior to the form’s filing. Businesses classified as a C corporation or an LLC can file Form 2553 to benefit from S corporation tax treatment. It’s important to note that an LLC will remain an LLC from a legal standpoint if it elects S corporation status.
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If an LLC files IRS Form 2553 to be taxed as an S Corp, members can now be considered an employee and classify some of their income as salary and some as a distribution from the company. The owner will still have to pay self-employment taxes on the salary, but only regular income tax on the distribution. Thus, your business must be patronymic and be carried out in the United States. At the same time, your company must have no more than 100 shareholders who are US citizens. Unfortunately, according to US rules, non-resident foreigners are not allowed to own shares of an S-category corporation. Besides, shareholders must submit voluntary consent to receive such a status.
Many small businesses choose to incorporate to experience the varied advantages this legal filing can bring, including limited personal liability, enhanced credibility, and tax benefits. For business owners in the United States considering an S corporation classification, it is necessary to submit Form 2553 to the U.S. Internal Revenue Service (IRS) towards the start of the tax year.
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