Form 2553 Instructions: How to Complete and File It

Form 2553, Election by a Small Business Corporation, is how an LLC or corporation tells the IRS it wants to be taxed as an S corporation. Nothing else does this. Forming an LLC does not, checking a box with your state does not, and telling your accountant does not. Until a completed Form 2553 is filed and accepted, there is no S corporation.

The form itself is four pages and is free from irs.gov — see Form 2553 PDF for the blank form itself. The difficulty is not filling in boxes — it is knowing which date belongs on line E, who counts as a shareholder who must consent, and where the form goes. This guide covers each of those; for the submission from start to finish, see how to file Form 2553.

Before you start: is the election worth it?

An S election is not free. It commits you to running payroll, filing Forms 941 and 940, issuing yourself a W-2, and filing a separate Form 1120-S every year. Realistically that is $900 to $2,700 a year in payroll service and extra return preparation.

Below roughly $50,000 of profit, those costs usually exceed the tax saved. There is also an offset most people are not told about: every dollar you pay yourself as salary reduces your Section 199A qualified business income dollar for dollar, and so cuts the deduction by twenty cents, which claws back around a third of the headline saving for most owners.

Check you are eligible first

An S corporation must meet every one of these tests, and it must keep meeting them. If any is broken, the election is invalid — and if it is broken later, the election terminates.

• It is a domestic entity — formed in the United States.
• It has no more than 100 shareholders. Family members can be counted as one shareholder.
• Every shareholder is an individual, an estate, or a qualifying trust. A partnership, an LLC, or a corporation cannot hold shares.
• No shareholder is a nonresident alien. This trips up businesses with a foreign co-founder more often than any other rule.
• There is only one class of stock. Differences in voting rights are fine; differences in distribution or liquidation rights are not.
• It is not an ineligible corporation — certain financial institutions, insurance companies and domestic international sales corporations cannot elect.

Part I, page 1 — line by line

Getting line E right

Line E is the box that decides whether your election starts when you think it does, and it is where most self-filed forms go wrong.

If your business already existed before this tax year

Enter the first day of the tax year you want the election to cover. For a calendar-year business that is January 1. You can file at any time during the preceding tax year, or up to 2 months and 15 days into the year itself.

If this is the entity's first tax year

Enter the earliest of three dates — not the formation date by default:

1. 1The date the entity first had shareholders or owners.
2. 2The date the entity first had assets.
3. 3The date the entity began doing business.

The form itself carries a caution about this: a new entity will usually enter the start of a short tax year beginning on a date other than January 1. If you registered your LLC in March but opened a bank account and started invoicing in February, February is very likely your answer, and your deadline is measured from there.

Page 2 — shareholder consents

Every shareholder must consent, personally, in writing. This is the requirement that most often sinks an otherwise correct filing.

• Signatures must be handwritten. Column K is a consent under penalties of perjury. A typed name is not a consent.
• Page 2 holds only seven shareholders. If you have more, use additional copies of page 2 — the form says so on the page itself.
• Community property spouses must consent too. If you are in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin and your spouse has a community interest in the stock, they sign as well.
• Late elections need a wider set of signatures. Everyone who was a shareholder at any time from the first day of the election year through the day you file must sign — including people who have since sold out entirely.

Parts II, III and IV — when they apply

Where to send Form 2553

Form 2553 cannot be e-filed. It goes by mail or fax to one of two IRS service centers, chosen by where your business actually operates — its principal business, office or agency. Not where it was incorporated. A Delaware LLC run from Ohio files as an Ohio business. For the addresses themselves, see where to mail Form 2553.

If you have already missed the deadline

Filing late does not void the form, and this surprises people. Under IRC §1362(b)(3), an election filed after the deadline is simply treated as an election for the following tax year. You will not be rejected; you will quietly get a different start date than the one you wanted.

To keep your original date, request relief under Rev. Proc. 2013-30. You generally qualify if you intended to be an S corporation from the effective date, the only thing that went wrong was the missed filing, everyone has reported income consistently, and you are within 3 years and 75 days of the effective date.

A late filing needs three things the timely version does not: the words FILED PURSUANT TO REV. PROC. 2013-30. written across the top margin of page 1, an explanation on line I covering both reasonable cause and the diligent action you took on discovering the problem, and consent signatures from the wider look-back group. See our late election guide for the full conditions.

After you file

1. 1Keep your proof of filing

   A fax transmission report or a certified mail return receipt is the only thing that establishes your filing date. Scan it and keep it permanently.

2. 2Watch for Notice CP261

   This is the acceptance notice. The IRS says to expect a determination in about 60 days, though it does not publish a live processing estimate for this form — see Form 2553 processing time for what happens after you file. Keep the notice — you will need it to open payroll accounts.

3. 3Chase it if nothing arrives

   After 60 days with no response, call the IRS Business and Specialty Tax Line on 800-829-4933 with your proof of filing to hand.

4. 4Start payroll

   The election means nothing in practice until you actually pay yourself a reasonable salary through payroll, with withholding and quarterly filings.

The four mistakes that cause most rejections

1. 1A missing or typed shareholder consent. Every shareholder signs Column K by hand.
2. 2A name that does not match IRS records. Use the exact legal name associated with your EIN, not a trade name.
3. 3The wrong date on line E, usually a new entity entering January 1 when its first tax year began mid-year.
4. 4Sending it to the wrong service center, almost always because routing was based on the state of incorporation rather than where the business operates.