A corporation informs the Internal Revenue Service of its choice
to be taxed as an S-Corporation instead of as a C-Corporation using
IRS Form 2553. It is extremely important for a newly formed
corporation to make this decision early.
Forming an S-Corporation
In order to create an S-Corporation, the organizers of the business
must take the following steps:
- Draw up articles of incorporation, by-laws, and various
resolutions,
- Incorporate the business as a corporation in the state where
the company will conduct the bulk of its business,
- Verify that the corporation meets the
eligibility criteria for being an
S-Corporation, and
- Notify the IRS of its intention to be taxed as an
S-Corporation by filing IRS Form 2553 no later than the 15th day
of the third month following its date of incorporation.
Electing S-Corporation Status
Corporations elect S-Corporation status using IRS Form 2553. Each
shareholder at the time the form is filed must sign the form.
When to Submit Form 2553
IRS Form 2553, Election by a Small Business Corporation (instructions,
PDF form) must be filed:
- Before the 16th day of the 3rd month of the corporation's
tax year,
- Before the 15th day of the 2nd month of a tax year lasting
2-1/2 months or less,
- At any time during the tax year before the tax year the
election is to take effect,
- At any time after these deadlines if the corporation follows
special rules for making a
late S-corporation election.
Examples of Form 2553 Deadlines
ABC Corporation just incorporated on July 1st. ABC has until October
16th to file Form 2553 for the S-Corporation election to be valid
for the company's first year of operation.DEF Corporation just
incorporated on November 1st. Since the first tax year will be less
than 2-1/2 months (just November 1-December 31), DEF has until
January 15th of the following year to file Form 2553 for the
S-Corporation election to be valid for the company's first year of
operation.
GHI Corporation has been incorporated for several years and is
currently taxed as a C-corporation. GHI can file Form 2553 by
December 31st if the company wishes to convert to an S-corporation
for the following year.
JKL Corporation just incorporated on February 14th. It did not
file Form 2553, however it wishes to be taxed as an S-Corporation
beginning with its first year of operation. JKL will need to follow
carefully the special rules for making a
late election for S-Corporation status.
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