Practical Guide to S Corp Election Form 2553
What Is S Corp Election Form 2553?
Form 2553 is the internal revenue service (IRS) document that a domestic corporation files to elect S corporation status for tax purposes. By choosing S corp treatment, a business can pass its income, losses, deductions, and credits through to shareholders, avoiding the double taxation that C‑corporations face.
The election must be made by the corporation’s shareholders and signed by an officer. Once approved, the corporation files a short‑form tax return (Form 1120‑S) each year, and shareholders receive a Schedule K‑1 to report their share of the profit or loss on personal returns.
Who Should Consider Filing?
The S corp election is ideal for small‑to‑mid‑size businesses that meet specific eligibility criteria:
- 100 shareholders or fewer
- All shareholders are U.S. citizens or resident aliens
- Only one class of stock is issued
- The corporation is not an ineligible type (e.g., certain financial institutions)
Entrepreneurs who want to reduce self‑employment tax, retain corporate liability protection, and keep a simple tax reporting structure often find the S corp election advantageous.
Key Steps to Complete Form 2553
Filing Form 2553 involves a clear sequence of actions. Follow these steps to ensure a smooth election:
- Gather corporate information: EIN, incorporation date, and state of organization.
- Verify shareholder eligibility and obtain signatures.
- Complete Part I – election information and tax year selection.
- Complete Part II – shareholder consent, including each shareholder’s name, address, and share count.
- Review the form for accuracy and sign under penalty of perjury.
After the form is signed, you’ll need to choose a filing method—mail, fax, or an online portal offered by a third‑party service.
Common Mistakes and How to Avoid Them
Even experienced business owners can slip up when filing Form 2553. The most frequent errors include:
- Missing the 75‑day deadline relative to the beginning of the tax year.
- Incorrectly reporting the corporation’s tax year (calendar vs. fiscal).
- Failing to obtain every shareholder’s signature.
- Using the wrong EIN or entering an outdated address.
To avoid these pitfalls, double‑check the deadline on the IRS website, keep a checklist of required fields, and have a second pair of eyes review the completed form before submission.
Filing Options: Mail, Fax, and Online
Choosing the right filing method depends on your timeline, convenience, and whether you need a paper trail. Below is a quick comparison:
| Method | Typical Processing Time | Pros | Cons |
|---|---|---|---|
| 2‑4 weeks | Paper record; no technology required | Longer wait; risk of postal loss | |
| Fax | 5‑10 business days | Faster than mail; immediate confirmation of receipt | Requires fax machine or online fax service; limited to one‑page forms |
| Online (via tax‑software or service) | 3‑7 days | Instant submission, electronic receipt, built‑in validation checks | May involve subscription fees; need reliable internet |
If you prefer a paper‑free workflow, many businesses use a secure online fax service that can transmit Form 2553 directly to the IRS. For those who need a physical copy for records, mailing remains a solid fallback.
Timeline and Deadlines
The IRS requires the election to be filed:
- No later than 75 days after the corporation’s tax year begins, or
- By the 15th day of the third month of the tax year for a calendar‑year corporation.
Missing the deadline doesn’t always mean the election is lost. The IRS provides relief procedures for late elections if you can demonstrate reasonable cause and meet specific criteria. However, relying on relief can delay processing and add complexity.
Costs, Fees, and Pricing Considerations
Submitting Form 2553 itself does not involve an IRS filing fee. The primary costs are related to preparation and transmission:
- Professional services (CPA or attorney) typically range from $150 – $400 per filing.
- Online filing platforms may charge a one‑time fee of $20 – $60 for the form and electronic submission.
- Fax services often operate on a pay‑as‑you‑go model, costing $0.10 – $0.25 per page.
When budgeting, factor in any follow‑up consultation fees if the IRS requests clarification or additional documentation.
Post‑Filing: What Happens Next?
After the IRS receives your Form 2553, you’ll receive a confirmation notice (CP261) if the election is approved. The notice includes the effective date of S corp status, which is crucial for tax planning.
If the election is denied, the notice will explain the reason. Common reasons include missed deadlines or ineligible shareholders. You can correct the issue and resubmit, but you may need to wait until the next tax year to re‑elect.
Frequently Asked Questions
Can I change my election after it’s been approved?
Yes, you can revoke the S corp election by filing a statement of revocation, but the change takes effect at the beginning of the next tax year unless the IRS grants an exception.
Do I need to file Form 2553 for each state where I operate?
Form 2553 is a federal filing. Some states recognize the federal S corp election automatically, while others require a separate state election. Check your state’s tax authority for specific requirements.
Where do I send the fax for Form 2553?
The IRS fax number varies by location and tax year. You can find the current fax number on the official where to fax form 2553 page, which lists the most up‑to‑date contact information.