🔍
How to Fill out IRS Form 2553: Easy-to-Follow Instructions - YouTube
Channel: Fundera by NerdWallet
[0]
IRS Form 2553 Script
[1]
Hi everyone, I'm Priyanka Prakash, senior
staff writer for Fundera.
[4]
Today I'll show you how to fill out IRS Form
2553: Election by a Small Business Corporation.
[11]
The most common use for this form is for a
limited liability company (LLC) or C-corp
[18]
that wants to be taxed as an S-corporation.
[22]
If you correctly complete and submit this
form on time, the IRS will treat your business
[27]
as an S-corp for federal income tax purposes.
[31]
This means the profits and losses of your
business will pass through to the owners’
[36]
personal tax returns, and the business itself
will not pay an income tax.
[41]
Now, before you even fill out this form, you
should make sure that you meet the requirements
[46]
for electing S-corp tax status.
[49]
There's a long list of requirements that you
can find in the IRS guide that accompanies
[54]
this form, but the main requirements are that
your company can have no more than 100 shareholders,
[62]
only one class of stock, and no nonresident
alien shareholders.
[67]
Okay, let's get to the form now.
[70]
Part 1: Election Information starts with some
basic business information, such as your business
[76]
name, address, and EIN number.
[79]
If you currently have an LLC which does not
have an EIN number, you'll need to apply for
[86]
one first using IRS Form SS-4 before you fill
out this form, I'm going to provide this information
[94]
for a sample business called ABC Bakery, which
is an LLC, and I'll assume that ABC Bakery
[106]
does have an EIN already.
[109]
Next, provide the date and state of incorporation.
[114]
That wording makes sense if you're currently
a C-corp, but it's a little misleading if
[119]
you're filling out this form as an LLC because
technically you're not an incorporated business.
[125]
However, what this is getting at is simply
the date that you registered your business
[130]
with the state, or filed your articles of
organization or articles of incorporation.
[135]
In this case, let's say that ABC Bakery registered
with the state on January 5, 2018, and they
[146]
registered in New York state.
[150]
After applying for an EIN, if your business
changed its name or address, you would check
[156]
off the applicable box in item D. If not,
skip this item, and move on to item E. Item
[164]
E is important because you'll need to provide
the tax year in which your S-corp election
[170]
is to take effect.
[172]
If you meet all the requirements for an S-corp,
you should file Form 2553 no later than two
[179]
months and 15 days after the start of the
tax year in which you want your election to
[185]
take effect.
[186]
That is March 15 for most businesses that
follow a calendar tax year.
[192]
You can also submit the form at any time during
the preceding tax year.
[197]
Let's say that's the case for ABC Bakery LLC,
and that the owner wants the S-corp election
[205]
to take effect in 2020.
[209]
In item F, choose your business’s tax year,
which for most companies will just be an ordinary
[216]
January 1 to December 31 calendar tax year.
[221]
You might choose a fiscal year if you have
a seasonal business in which the tax year
[228]
ends on a day other than December 31.
[232]
For Item G, remember that you can't have more
than 100 shareholders in an S-corporation.
[238]
However, you
can treat spouses or members of the same family
[243]
as one shareholder for the purposes of this
count.
[247]
If that's how you'll be counting certain shareholders,
check off this box next to item G.
[253]
In item H, provide the name and title of the
business contact person.
[259]
For most of you watching this video, that's
probably you who is filling out the form.
[265]
In our example, will say that the business
contact person is Betty Business, who's the
[271]
CEO of ABC Bakery.
[274]
You should also provide the phone number.
[278]
Item I is where you would provide an explanation
if you are filing Form 2553 after the deadline.
[289]
In order for the IRS to accept your late-filed
Form 2553, you have to provide reasonable
[298]
cause for the delay.
[299]
For example, maybe you did not understand
the rules about the deadlines or your accountant
[304]
failed to file on time.
[306]
The IRS will often accept such explanations
as reasonable cause from a small business.
[314]
At the bottom of the form, don't forget to
sign, date, and provide the title of the officer
[321]
filling out the form.
[323]
You can't sign and date until you print out
the form, so I'm going to leave that blank
[327]
for now and just provide Betty Business’s
title.
[330]
Before you continue, make sure that on the
next page, you provide your business name
[336]
and EIN again at the top, so the IRS doesn't
lose any of your paperwork.
[343]
In this table, you'll enter the name and address
of each shareholder who's required to consent
[350]
to your S-corp election.
[352]
Your corporate bylaws or operating agreement
should identify who is required to provide
[358]
consent.
[360]
But in most cases, you'll need approval from
all current shareholders or owners of the
[365]
business, and they'll need to sign the form
in this section.
[369]
If you need more rows than what is provided
on this form, simply print out additional
[375]
copies of this page.
[377]
Most of you watching this video will probably
just fill out a few of these lines.
[382]
Now, if you're structured as an LLC, you don't
have shareholders.
[387]
You have members of the business, and you
would provide their names and percentage of
[391]
ownership instead of share information in
this section.
[395]
In this case, I'm going to assume that Betty
and her business partner, Chris Corporate,
[403]
are the only two owners of ABC Bakery and
they have a 60/40 ownership split.
[409]
Here, I'll provide information for both of
them.
[415]
I'll assume that Betty Business acquired her
percentage of ownership on the day that ABC
[422]
Bakery was formed, and I'm going to provide
her social security number in column M. This
[428]
last column is most important if the shareholder
or owner is a company.
[436]
If it's an individual, the tax year almost
always ends on December 31.
[443]
And that's it for the table in this case.
[446]
You'd also want to remember to have both Betty
and Chris sign here.
[453]
Part 2 of Form 2553 applies to businesses
that follow a fiscal tax year.
[460]
You'd only fill out this section if you chose
to check off either box 2 or a box 4 in item
[470]
F of Part 1.
[473]
This might apply to seasonal businesses or
to businesses whose primary shareholders follow
[480]
a fiscal tax year.
[482]
But most of you watching this video will follow
a calendar tax here, and you can skip this
[487]
part.
[488]
Part 3 of Form 2553 applies only to businesses
that are electing Qualified Subchapter S Trust
[495]
Election under Section 1361(d)(2) of the federal
tax code.
[502]
In order to qualify for this election, you
must have a trust which is a qualified shareholder
[509]
of your business.
[510]
In addition, corporate stock must have been
transferred to the trust on or before the
[515]
date on which the business makes it selection
to be treated as an S-corp.
[520]
Most of you watching this video will skip
Part 3.
[523]
This part is more applicable to larger companies
who have trusts as shareholders.
[529]
Lastly, we come to Part 4 as long as you're
filling out this form on time you can skip
[535]
Part 4.
[537]
If you missed the deadline, however, then
you're agreeing to each of the representations
[542]
that's listed in this part.
[543]
And that's it for Form 2553, you can mail
or fax the form to the IRS as indicated for
[551]
your state on the cover page of the form.
[554]
There's no fee to file Form 2553, and the
IRS should notify you within two months whether
[562]
your S-corp tax election was accepted or not.
[566]
Now that you are an S-corp for tax purposes,
you'll eventually need to file Form 1120S,
[573]
which is the informational tax return for
S-corps, and you'll need to provide a Schedule
[579]
K-1 to your shareholders.
[582]
Keep in mind that you might also need to fill
out additional paperwork with your state in
[587]
order to be treated as an S-corp for state
tax purposes.
[591]
If you'd like additional help in filing Form
2553, we suggest using a legal help service
[599]
such as
LegalZoom.
[601]
When you form your company on LegalZoom, you'll
be prompted to specify whether you would like
[607]
to elect S-corporation tax status.
[610]
If you choose yes, LegalZoom will file Form
2553 on your behalf for an additional fee.
[617]
We hope this was helpful in filling out Form
2553.
[621]
Head over to https://fundera.com/blog for
more small business information, and subscribe
[627]
to our YouTube channel for more videos.
[630]
Thank you for watching everyone.
Most Recent Videos:
You can go back to the homepage right here: Homepage