Form 2553 (S Corporation Election)
The election that changes how an eligible corporation or LLC is taxed, trading entity-level tax for pass-through treatment and a reasonable-salary duty.
Detailed Explanation
Filing Form 2553 changes the entity's federal tax classification to that of an S corporation, allowing pass-through taxation while permitting owners who actively work in the business to take part of their compensation as distributions (not subject to self-employment tax). Late S-elections may be granted relief under Rev. Proc. 2013-30 for entities meeting reasonable cause and consistent reporting requirements. All shareholders must be eligible (US citizens or residents, certain trusts and estates) and consent to the election.
Key Points
- Elects S corporation tax treatment for an eligible corporation or LLC.
- Generally due within 2 months and 15 days (about 75 days) of the start of the tax year the election takes effect.
- All shareholders must be eligible (US citizens or residents, certain trusts/estates) and must consent.
- Late elections can often be cured under Rev. Proc. 2013-30 with reasonable cause and consistent reporting.
- Eligibility limits: maximum 100 shareholders and only one class of stock.
Practical Example
An LLC formed on January 10 wants S-corp treatment for the full year. It files Form 2553, signed by all members, by roughly March 25 (within 75 days). Missing that window, it can still request late-election relief under Rev. Proc. 2013-30 by attaching a reasonable-cause statement, as long as it has consistently filed as an S-corp.
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