Form 2553: Election By A Small Business Corporation

Form 2553, officially titled "Election by a Small Business Corporation," is a document filed with the Internal Revenue Service (IRS) by an eligible corporation or limited liability company (LLC) to elect S corporation tax status. By default, corporations are taxed as C corporations, meaning the company pays income tax on its profits, and then shareholders pay taxes again on any dividends they receive (double taxation). S corporations, on the other hand, allow profits and losses to "pass through" to the shareholders on their personal tax returns, avoiding double taxation.

Who Needs to File Form 8832?

  • Businesses that are not already classified as a corporation and want to be taxed as one.
  • Businesses that want to change their current tax classification.
  • Certain foreign businesses with multiple owners who want to be classified as a partnership.
  • Certain foreign businesses with a single owner who want to be disregarded as a separate entity from the owner (like a sole proprietorship).

Who Doesn't Need to File Form 8832?

  • Businesses already classified correctly under the default rules (explained below).
  • Tax-exempt organizations.
  • Real estate investment trusts (REITs).
  • Businesses electing to be S corporations (use Form 2553 for this).

Acceptance or Nonacceptance

The IRS will notify the entity of the election's acceptance or nonacceptance within 60 days of filing. However, if no notification is received within 60 days, the entity should follow up with the IRS to inquire about its status.

Do I Need to File This Form if I'm an LLC?

Not necessarily. By default, an LLC with two or more members is considered a partnership, and an LLC with one member is disregarded entity. You only need to file Form 8832 if you want your LLC to be taxed as a corporation.

What Are the Benefits of Being a Corporation?

Corporations offer limited liability protection to their owners. This means that the owners' personal assets are generally not at risk if the business goes into debt. Corporations can also have more access to capital than other business structures.

What Are the Benefits of Being a Partnership or Disregarded Entity?

Partnerships and disregarded entities avoid double taxation (once at the business level and again at the owner level). They can also be simpler to set up and maintain than corporations.

When Do I Need to File Form 8832?

Generally, you can file the form anytime between 75 days before you want the new classification to take effect and up to 12 months after. There are also provisions for late election relief in certain situations.

What is An S-corporation (S-corp)?

An S-corp is a special type of corporation that passes corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes.

Why Would a Business Choose S-corp status?

S-corp status offers potential tax benefits, including avoiding double taxation on corporate profits and providing limited liability protection to shareholders.