Form 2553 (2016): Small Business Election Checklist
Form 2553 allows an eligible business entity to elect S corporation tax status for federal taxes.
Under Internal Revenue Service rules, this election modifies the calculation of corporate taxes, payroll taxes, and shareholders' tax liability.
Understanding Form 2553 Filing Deadlines
The Internal Revenue Service requires strict adherence to filing deadlines to apply S-Corp
Election status to the intended fiscal tax year. Form 2553 must generally be filed no later than two months and 15 days after the start of the tax year or during the preceding tax year. Late filings may require relief under Revenue Procedure 2013-30.
Determining Eligible Business Structures
Only certain business structures may file IRS Form 2553. Domestic corporations and limited liability companies that have elected corporate taxation are eligible entities. Disregarded entities and C corporation subsidiaries do not qualify unless they meet all S corporation requirements.
Evaluating S Corporation Eligibility Requirements
Before filing, confirm that the business qualifies as a pass-through entity under S corporation rules. The corporation must have no more than 100 shareholders, all of whom must be eligible individuals, estates, or qualifying trusts. Partnerships, nonresident aliens, and benefit corporation shareholders are not permitted.
Comparing S Corporation and C Corporation Tax
Treatment
An S corporation differs from a C corporation because it avoids entity-level corporate taxes.
Instead, income flows through to shareholders and is reported on Form K-1, where it is taxed at personal, rather than corporate, tax rates. This pass-through tax treatment can reduce overall tax liability.
Step-by-Step Filing Checklist
Step 1: Verify Your Filing Deadline
Confirm the filing deadline based on the beginning of your fiscal year or fiscal tax year. Newly formed entities must count on their official formation date recorded with the Department of
Revenue or the Secretary of State.
Step 2: Confirm Corporate Formation Date
Locate your official formation documents to confirm when your business structure legally began operations. This date determines whether your S-Corp election applies to the current tax season or the following tax year.
Step 3: Review Business Tax Year Selection
Most S corporations must operate on a calendar year ending December 31. A fiscal year election requires IRS approval and must comply with the Form 2553 instructions.
Step 4: Gather Required Shareholder Information
Collect shareholder names, addresses, Social Security numbers or EINs, ownership percentages, and signatures. Accurate shareholder data ensures proper Schedule B and Form
K-1 reporting.
Step 5: Obtain All Shareholder Consents
Every shareholder must consent to the election in writing. Missing signatures invalidate the filing, regardless of timely submission.
Step 6: Complete Form 2553 Accurately
Enter the business name exactly as it appears in IRS records, along with your employer identification number. Confirm that the filing meets the IRS service center requirements for your business location, including New York State or Arizona jurisdictions.
Step 7: Document Principal Business Activity
Select the correct business activity code consistent with Schedule C, Schedule D, or Form 4797 reporting. This information supports the proper classification of net taxable income and start-up losses.
Step 8: Address Community Property State Requirements
If operating in Arizona or another community property state, ensure both spouses sign Form
2553 when ownership is shared. Arizona Revised Statutes require spousal consent even when ownership is indirectly held.
Step 9: Submit the Election Properly
File Form 2553 by mail, fax, or with return preparation software that provides a confirmation number. Retain proof of submission for audit and tax practice records.
- Full IRS transcript retrieval (Wage & Income + Account)
- Professional tax form review
- Preparation & filing support
- Tax relief options if you owe the IRS
Step 10: Request Late Election Relief if Necessary
If the deadline was missed, prepare a reasonable cause explanation under Revenue Procedure
2013-30. Late relief may still allow pass-through tax treatment to be retroactively applied.
Ongoing Tax Compliance Considerations
Once elected, S corporations must accurately manage payroll taxes, Medicare taxes, and estimated payment obligations. Reasonable compensation paid to shareholders is subject to payroll tax, while remaining profits flow through without self-employment tax.
State and Local Tax Implications
S corporation elections affect state and local taxes differently across jurisdictions. New York
State recognizes federal S elections, while Arizona imposes additional rules on Arizona small business income tax, the franchise tax, and Arizona Proposition 208.
Recordkeeping and Return Preparation Best Practices
Maintain records supporting Schedule A charitable contributions, Schedule D capital transactions, Form 4835 farm rental income, and extension payments. Proper documentation simplifies compliance during tax season and supports payment plans if needed.
Key Points for Maintaining a Valid Election
Monitor ownership changes, stock classes, and business activities to avoid unintended termination. The IRS will notify you of acceptance or issues within approximately 60 days, provided you maintain your tax benefits correctly.
If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.
