| Forms to use | |
IRS 2553 Election of S Corporation |
| Some basics |
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You can be an S-corporation if your corporation
- Incorporated in the U.S.
- Has one class of stock;
- Has no more than 100 shareholders;
- None of your shareholders are non-resident aliens (non-US residents);
- None of your shareholders are partnerships or corporations
- Your corporation isn't a bank, an insurance company or part of an affiliated group of
corporations.
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| Restrictions |
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- All shareholders must sign form 2553, electing S-corporation status.
- Shareholders are required to make quarterly tax payments on their percentage of the
S-corporation's net income. Thus, S-corporations usually distribute their profits
quarterly. Note: Without S-corporation status, shareholders would only have to pay
quarterly tax deposits if they were paid dividends during the quarter.
- Tax year-end restrictions: All shareholders and the S-corporation need to have a 12/31 tax year.
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| Talk with your tax advisor |
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Choosing whether to be an S or a C-corporation is a very important
tax planning decision that should be done with your tax advisor.
C-Corporation status: Good choice for businesses which want to reinvest profits.
A C-corporation is beneficial if you want to accumulate earnings
for a business expansion. If your corporation's tax rate is 15% or 25% while your
shareholders have a 28% tax rate, you can decide not to pay dividends - so there
isn't double taxation - reinvest most of your earnings for business expansion
and have a lower overall tax rate than if you had chosen S-corporation status
and distributed all your profits.
C-corporations can offer employees incentive stock options; S-corporations cannot.
S-Corporation status: Good choice for businesses which expect initial losses.
Initial business losses can only be passed through to S-corporation
shareholders, not C-corporation shareholders.
We suggest that you consult with your tax advisor before mailing
in this form to make sure that your corporation qualifies as an S-corporation
and to discuss the pros and cons of this decision.
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| Time deadlines |
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Within 75 days of filing your Articles of Incorporation.
You can also choose S-corporation status anytime by filing the form before
March 15th of the year that you want to begin your S-corporation status.
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| What to do |
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- The Board of Directors should vote to elect S-corporation
status and this should be recorded in the minutes.
- Complete form 2553.
If you elect a 12/31 year-end and aren't a trust, you only have to complete Part I
of this form. All shareholders must sign the form and should have a 12/31 tax year.
Keep a copy for your records.
- Mail form 2553 to the IRS. The IRS should send you an acknowledgement letter.
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| How to complete the form | |
| Lines | What to do |
| A | Employer identification number is the number you received
after filing SS-4. |
| I | Your proposed tax year-end. If this is not 12/31 you must
complete Part II of this form. |
| J | Each shareholder's name, signature, number of shares owned, date acquired,
and social security number. |
| Parts II and III | Only complete these sections if
you want to have a non-12/31 tax year or you are a trust. Please consult with your tax
advisor for specific instructions
on completing this portion of the form. |
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| Changing your mind |
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Shareholders may vote to revoke their S-corporation status at any time.
The effective date is January 1st of either the current year or the following year,
depending on when the revocation was made. Call the IRS for the proper form. |
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| To mail | |
2553 S-corporation filing
IRS
Ogden, UT 84201
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| Questions? | |
Call the IRS information hotline (800) 829-4933. For forms, call
(800) 829-3676 or obtain them online at http://www.irs.ustreas.gov/formspubs/index.html. |
