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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:
  1. Draw up articles of incorporation, by-laws, and various resolutions,
  2. Incorporate the business as a corporation in the state where the company will conduct the bulk of its business,
  3. Verify that the corporation meets the eligibility criteria for being an S-Corporation, and
  4. 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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