For many small business owners, the decision to elect S corporation (S corp) status can lead to significant tax savings and operational flexibility. However, to officially become an S corporation in the eyes of the IRS, you must file IRS Form 2553—the S corp election form.
This form allows eligible domestic corporations and certain limited liability companies (LLCs) to elect to be taxed as an S corporation rather than a traditional C corporation. The process may seem daunting at first, but understanding what Form 2553 is used for, who qualifies, and how the election works can simplify the experience and help your business maximize tax efficiency.
What Is IRS Form 2553 Used For?
IRS Form 2553, officially titled Election by a Small Business Corporation, is the form a corporation or eligible LLC uses to elect to be taxed as an S corporation under Subchapter S of the Internal Revenue Code.
When a business is taxed as an S corp, it avoids double taxation—the key advantage of this structure. In a standard C corporation, profits are taxed at both the corporate and shareholder levels. But with S corp status, the company’s income, deductions, and credits “pass through” directly to the shareholders’ personal tax returns, where they are taxed at individual rates.
In short, filing Form 2553 tells the IRS: “We want to be treated as an S corporation for tax purposes.”
Businesses that fail to file this form or do so incorrectly will remain classified as C corporations or default LLCs, missing out on potential tax benefits. Properly submitting the S corp election form is the first and most crucial step toward achieving this status.
Who Is Eligible to File Form 2553?
Not every business can elect S corporation status. The IRS sets specific eligibility criteria to ensure that S corps remain small and closely held. According to the Form 2553 instructions, to qualify for S corp election, your company must meet the following requirements:
- Be a domestic corporation or LLC. The business must be formed in the United States.
- Have no more than 100 shareholders. All shareholders must be individuals, certain trusts, or estates—no partnerships or corporations can be shareholders.
- Have only one class of stock. While differences in voting rights are allowed, all shares must represent equal ownership interests.
- All shareholders must be U.S. citizens or residents. Foreign individuals or entities cannot own shares in an S corporation.
In addition, all shareholders must consent to the S corp election by signing the form. For LLCs that want to be taxed as an S corp, the election applies for federal tax purposes only—the company remains an LLC at the state level.
Understanding these qualifications before filing ensures that your election won’t be rejected due to ineligibility.
When Is the Deadline for Filing Form 2553?
Timing is one of the most critical aspects of filing IRS Form 2553. According to the official Form 2553 instructions, the election must be filed:
- No later than two months and 15 days after the beginning of the tax year in which the election is to take effect, or
- At any time during the tax year preceding the year it is to take effect.
For example, if your business wants to be treated as an S corporation starting January 1, 2025, you must file Form 2553 by March 15, 2025. If you miss that deadline, your election will not apply until the following tax year—unless you qualify for late Form 2553 relief.
Businesses that were unaware of the deadline or can demonstrate “reasonable cause” for the delay may request relief from the IRS. Under the late Form 2553 relief provisions, the IRS often allows retroactive S corp elections if the company can show it intended to file on time but made an honest mistake or administrative error.
Filing on time—or securing relief if you miss the window—is essential to ensure your election takes effect for the desired tax year.
How Long Does It Take for the IRS to Approve Form 2553?
Once you’ve submitted your S corp election form, the IRS typically takes 60 to 90 days to process and approve the election. In some cases, it can take longer if additional documentation is required or if the filing is incomplete.
After approval, the IRS will send a confirmation letter (CP261 Notice) stating that your S corp election has been accepted. This notice should be kept with your corporate records and provided to your accountant for tax preparation.
If the IRS rejects your election, they’ll usually specify the reason—such as missing signatures, ineligible shareholders, or a missed filing deadline. In such cases, you can correct the issue and refile or, if eligible, apply for late election relief.
Once approved, the business will use IRS Form 1120-S, the S Corporation Income Tax Return, to report its income, deductions, and credits annually. Each shareholder will also receive a Schedule K-1 detailing their share of the company’s income and expenses to include on their personal tax returns.
Form 2553 Instructions and Filing Process
Filing IRS Form 2553 correctly requires attention to detail. Here’s a summary of how the process works:
- Complete the form accurately. Include your business’s name, address, EIN (Employer Identification Number), and the effective date for your S corp election.
- List all shareholders. Each shareholder must provide their name, address, tax ID number, and signature consenting to the election.
- Submit the form to the IRS. You can mail or fax the completed form to the IRS office designated for your state (listed in the instructions).
You can also consult a tax professional to ensure your Form 2553 instructions are followed correctly—especially if your business has complex ownership or timing considerations. Mistakes in filing can delay or invalidate your election.
IRS Form 1120-S and Ongoing Compliance
After your S corporation election is approved, your business must file IRS Form 1120-S each year. This form reports the company’s financial activity, including revenue, deductions, and shareholder distributions.
S corporations are pass-through entities, so the business itself does not pay federal income tax. Instead, shareholders report their portion of the profits or losses on their individual tax returns. Maintaining proper accounting and recordkeeping ensures smooth annual reporting and continued compliance with IRS regulations.
