Overview of Form 2553
Form 2553 allows small businesses to be taxed as corporations, not sole proprietorships or partnerships. S-corps file it to elect pass-through taxation. Owners pay taxes on their personal returns. C-corps face corporate taxes plus shareholder taxes on dividends.
Benefits of Filing Form 2553
- LLCs, partnerships, and some non-profits file Form 2553 to be taxed as S-corps.
- Most small businesses file for tax purposes. S-corps reduce taxes because income is only taxed to shareholders. C-corps pay taxes then shareholders pay again on dividends.
How to File Form 2553
- Gather business information to file Form 2553: names, addresses, EIN, number of shares. Justify fiscal year. Describe ownership percentages. Mail or e-file. The election letter confirms or denies S-corp status.
Reasons to File Form 2553
- Eligible small businesses file Form 2553 to elect S-corp taxation, combining limited liability with pass-through taxation.
- File to avoid double C-corp taxation. Income, losses and credits pass through to shareholders.