If you own a small business and want to improve your tax plan, you may have heard of IRS Form 2553. This form is for small business corporations to make an election. This form lets your business be treated as an S Corporation (S-Corp) for taxes. This can bring benefits, but it’s not for everyone.
In this guide, we’ll break down what Form 2553 is, who should use it, eligibility requirements, how to file it correctly, and common mistakes to avoid.
What Is IRS Form 2553?
IRS Form 2553 is the form that LLCs or C Corporations file with the IRS to elect S Corporation (S-Corp) tax status. Instead of being taxed as a traditional C Corporation or a default pass-through LLC, an S-Corp provides a pass-through tax structure with additional tax advantages.
With an S-Corp election:
- The business itself doesn’t pay federal income tax (profits "pass through" to owners)
- Owners take a salary and receive distributions of profit, potentially lowering overall tax liability
- Avoids double taxation (C Corps pay tax at the corporate level, then owners pay again on dividends)
However, not every business should elect S-Corp status, and it comes with strict compliance rules—so let’s explore whether it’s right for you.
Should Your Business Elect S-Corp Status?
Why You Should Elect S-Corp Status:
- Tax Savings on Self-Employment Taxes – Instead of paying self-employment tax on all earnings (like in a Sole Proprietor), S-Corp owners split income between salary and distributions, reducing tax liabilities.
- Pass-Through Taxation – No corporate-level tax—profits and losses pass directly to shareholders, avoiding double taxation.
- Easier to Raise Capital – Compared to a sole proprietorship or traditional LLC, an S-Corp structure adds credibility.
Why You Should Not Elect S-Corp Status:
- You Don’t Take a Salary – The IRS requires owners to pay themselves a “reasonable” salary before taking distributions. If you avoid payroll, your S-Corp election could be revoked.
- This must be processed through payroll with taxes withheld, payroll reports filed, etc.
- Strict Ownership Rules – You can’t have more than 100 shareholders or any non-US citizen shareholders.
- More Administrative Work – Requires stricter bookkeeping, payroll setup, and compliance with tax laws.
- Real Estate / Rental Companies – The rules for taking property out of an S-corporation are very strict. All property has to be sold/removed at Fair Market Value or higher regardless of the same amount.
If your business structure doesn’t fit the S-Corp requirements, it may be better to stick with your original tax designation.
Eligibility Requirements for Filing Form 2553
Before filing, ensure your business meets the IRS eligibility rules for an S-Corp:
- Must be a domestic corporation or LLC
- Can’t have more than 100 shareholders
- Shareholders must be U.S. citizens or residents (no partnerships or corporations as owners)
- Must only have one class of stock (all shares have the same rights) ● All shareholders must consent to the S-Corp election
If your business fails any of these criteria, you cannot elect S-Corp status.
Page-by-Page Breakdown of Form 2553
Filing Form 2553 correctly is crucial. Here’s a step-by-step breakdown of what each page requires:
Page 1 – General Business Information
- Business Name & EIN – Ensure your Employer Identification Number (EIN) is correct.
- Incorporation Date & State – Enter the date your business was formed and the state of incorporation.
- Election Date – Typically, the start of the calendar year unless a fiscal year is chosen. ● Officer Signature – Must be signed by an authorized corporate officer.
Page 2 – Shareholder Information & Consent
- List all shareholders – Each must sign and provide their Social Security Number (SSN) or EIN.
- Number of shares issued or percentage owned – Must total total number of shares issued or 100%, respectively.
Page 3 – Fiscal Year Selection (If Applicable)
- Most businesses elect to use a calendar year (January–December), but if choosing a different fiscal year, additional IRS approval may be required.
Form 2553 Filing Deadlines
Standard Deadline:
- File within 75 days of starting your business or the year you wish to make the election.
Late Filing (Rev. Proc. 2013-30):
- If you missed the deadline, you can still request relief if your business has been operating as an S-Corp (payroll, accounting records, etc.).
Common Mistakes to Avoid When Filing Form 2553
Form 2553 is frequently rejected due to small mistakes. Avoid these common pitfalls:
- Incorrect Business Name or EIN – Make sure your Taxpayer Identification Number (TIN) is exactly correct, including dashes.
- Missing or Incorrect Shareholder Information – Every shareholder must sign and date next to their information on page 2 and provide their ownership percentage.
- Mailing Instead of Faxing – The IRS does not accept Form 2553 electronically. Fax it instead of mailing it to ensure delivery and record keeping.
Where to Fax Form 2553:
(855) 887-7734 if your business is in the Eastern U.S.
(855) 214-7520 if your business is in the Western U.S.
Do not mail—faxing provides proof that the IRS received your form.
Filing a Late S-Corp Election? Read This First.
What happens if I miss the S Corp election deadline? If you missed the deadline, don’t panic. The IRS allows late elections if:
- Your business has been operating as an S-Corp in practice (payroll, distributions, financial records).
- You attach a Late Election Relief Statement (write "FILED PURSUANT TO REV PROC 2013-30" at the top of the form).
- You split distributions based on ownership percentages, as required by the Internal Revenue Code.
If you’re unsure whether you qualify for late election relief, reach out to LedgerFi. We’ll help you determine eligibility and file your S-Corp election correctly.
Conclusion: Should You Elect S-Corp Status?
Filing Form 2553 can be a game changer for small business tax savings, but it must be done correctly to avoid IRS rejection.
- Make sure your business meets eligibility requirements
- File by the deadline (or apply for Rev. Proc. 2013-30 late election relief)
- Double-check every detail before submitting
- Fax it instead of mailing it for verification
At LedgerFi, we specialize in S-Corp elections and bookkeeping. Contact us today for expert assistance in making the right tax election for your business.
Schedule a free consultation today!
