In the United States, Internal Revenue Service (IRS) Form 2553, Election by a Small Business Corporation, is used by corporations that elect to be taxed under Subchapter S of Chapter 1 of the Internal Revenue Code. Corporations that have elected to be taxed under Subchapter S are described as "S corporations." The income and losses of S corporations are not taxed on a corporate level but are instead passed through to the shareholder owners and taxed on their individual income tax returns.
Complete the identifying information under Part I of Form 2553. This identifying information includes the name of your business, address of your business, employer identification number, date of incorporation and state of incorporation. It is important to ensure the identifying information matches that on file with the IRS. If your business has changed your name or address and not notified the IRS, you will need to check the appropriate box in Box D.
Enter the effective date of the election in Box E. If the election is effective for your first tax year, this will generally be the day you began operations.
Select your tax year in Box F. Although some cyclical businesses may qualify for fiscal tax years, the vast majority of taxpayers must choose a calendar year. If you choose a fiscal year, you will need to attach evidence supporting your need for such a reporting period.
Check Box G if you have 100 shareholders and aggregating family members to count as a single shareholder. If you have more than 100 shareholders and do not aggregate family members as a single shareholder, you are ineligible for an S corporation election.
Enter a contact representative's name, title and phone number in Boxes H and I.
Enter an explanation at the bottom of page 1 of Form 2553 for failing to timely file the form if you have not made the election within IRS time guidelines. If the election is made timely, it is not necessary to complete this section. If you need to complete this section, the IRS will require that you show reasonable cause, such as reliance on a paid professional or IRS guidance that resulted in your untimely filing.
Sign and date the form where noted on page 1.
Complete the shareholder election information on page 2 of Form 2553. For each shareholder, you will need to enter the shareholder's name and address, social security number, ownership percentage and end of the taxpayer's tax year. In addition, each shareholder must sign and date the election.
Complete Part II on page 3 only if adopting a fiscal tax year, not a calendar tax year. This is rare and the vast majority of corporations will not need to complete this part of the form.
Complete Part III if electing as a qualified Subchapter S trust. This is rare and the vast majority of corporations will not need to complete this part of the form.
A Subchapter S election avoids the double taxation of corporations, where income is taxed first on a corporate level and then on an individual level, when dividends are paid to the shareholder owners.
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