Free IRS 2553 PDF Form

The IRS Form 2553 is an important document for small business owners who wish to elect S Corporation status. However, several misconceptions surround this form, which can lead to confusion and potentially costly mistakes. Here are nine common misconceptions about the IRS Form 2553, along with clarifications for each.

• Misconception 1: Only large businesses can file Form 2553.

This is not true. Form 2553 is specifically designed for small businesses that meet certain criteria. Any eligible small business can elect S Corporation status by filing this form.

• Misconception 2: Filing Form 2553 is optional for all businesses.

While not every business must file this form, those that want to be taxed as an S Corporation must do so. Failing to file can result in default taxation as a C Corporation.

• Misconception 3: The form can be filed at any time during the year.

Form 2553 must be filed within a specific timeframe, typically within 75 days of the beginning of the tax year. Late filings can lead to complications.

• Misconception 4: All shareholders must be U.S. citizens.

While S Corporations have restrictions on shareholders, not all must be U.S. citizens. However, all must be individuals, certain trusts, or estates.

• Misconception 5: There is a penalty for filing Form 2553 incorrectly.

While there is no direct penalty, filing incorrectly can lead to your business being taxed as a C Corporation, which may result in higher taxes.

• Misconception 6: Once filed, the S Corporation election is permanent.

The election can be revoked or terminated under certain circumstances. If the business no longer meets the eligibility requirements, it may lose its S Corporation status.

• Misconception 7: Form 2553 guarantees tax savings.

While many businesses benefit from S Corporation status, it does not automatically result in tax savings. Each business's situation is unique, and tax implications should be analyzed carefully.

• Misconception 8: You cannot change your election after filing Form 2553.

Businesses can change their election, but they must follow specific procedures and guidelines set by the IRS to do so.

• Misconception 9: Filing Form 2553 is the only step to becoming an S Corporation.

Filing Form 2553 is just one part of the process. Businesses must also ensure they comply with ongoing requirements to maintain their S Corporation status.

What is the IRS Form 2553?

The IRS Form 2553 is a document used by small businesses to elect to be treated as an S corporation for federal tax purposes. By making this election, a corporation can avoid double taxation, which occurs when both the corporation and its shareholders are taxed on the same income. Instead, the income, deductions, and credits of the S corporation pass through to the shareholders, who report this information on their personal tax returns. This can lead to potential tax savings for the business owners.

Who is eligible to file Form 2553?

To be eligible to file Form 2553, a business must meet several criteria. First, it must be a domestic corporation. Additionally, the business can have no more than 100 shareholders, all of whom must be individuals, certain trusts, or estates. Furthermore, the corporation can only have one class of stock. If a corporation meets these requirements, it can take advantage of the S corporation election by filing Form 2553 with the IRS.

When should Form 2553 be filed?

Timing is crucial when it comes to filing Form 2553. Generally, the form must be submitted within two months and 15 days after the beginning of the tax year when the S corporation status is intended to take effect. For example, if a corporation wants its S corporation status to start on January 1, it must file Form 2553 by March 15 of that year. If the deadline is missed, the corporation may have to wait until the next tax year to make the election, unless it qualifies for late election relief.

What happens after Form 2553 is submitted?

Once Form 2553 is submitted, the IRS will review the application. If everything is in order and the corporation meets the eligibility requirements, the IRS will send a confirmation of the S corporation election. This confirmation is important for the corporation's records. Following the approval, the business will need to comply with ongoing requirements, such as filing an annual tax return using Form 1120-S and providing K-1 forms to shareholders for reporting their share of the income or losses on their personal tax returns.