As a small business owner, you can change how your business is taxed by making an S corporation election with the Internal Revenue Service. To elect S corporation tax treatment, you generally file IRS Form 2553.
A C corporation, single member LLC, or multi member LLC may be able to make the election if the business meets the IRS eligibility requirements.
This guide explains who can file Form 2553, when to file it, which information you need, what each section covers, and what happens after you submit the form.
Why would I want to change my tax classification?
When you create an LLC or corporation, the IRS generally assigns a default federal tax classification. That classification determines how business income is reported and how taxes can apply to the business and its owners.
If your default classification does not fit your business goals, you may be able to elect different tax treatment. For some eligible small businesses, S corporation taxation can reduce overall employment and income tax costs when compared with other tax classifications. The potential benefit depends on factors such as business profit, owner compensation, and the way income is distributed.
You can learn more about how an S corporation can affect small business taxes.
Default tax classifications at a glance:
Business entity | Default tax classification |
Single member LLC | Sole proprietorship |
Multi member LLC | Partnership |
C corporation | Corporation |
S corporation taxation is not the default classification for these entities. A qualifying business generally needs to make an election by filing Form 2553.
How are S corporations and C corporations taxed differently?
The primary difference is how business income is treated for federal tax purposes.
An S corporation generally uses pass through taxation. Business income passes through to the shareholders and is reported on their personal tax returns. The corporation generally does not pay federal corporate income tax on that income.
A C corporation generally pays federal corporate income tax on its taxable income. When the corporation distributes after tax profits as dividends, shareholders may also owe tax on those dividends. This is commonly described as double taxation.
An important distinction is that a C corporation shareholder does not generally pay shareholder level tax on corporate profits that are retained by the corporation rather than distributed as dividends.
S corporation shareholders generally report their share of the corporation's income whether or not the corporation distributes that income. Eligible owners may also qualify for the 20 percent pass through deduction, subject to applicable rules and limitations.
Comparison summary:
Feature | S corporation | C corporation |
Federal corporate income tax | Generally no | Yes |
Tax on business income | Generally passes through to owners | Generally paid by corporation |
Shareholder tax on dividends | Not applicable in the same way | May apply |
Tax on undistributed business income | Generally reported by shareholders | Generally remains at corporate level |
Potential pass through deduction | May qualify | Does not qualify |
What types of businesses are eligible to file IRS Form 2553?
A corporation, single member LLC, or multi member LLC may be eligible to elect S corporation taxation if it satisfies the IRS requirements.
The business generally must meet several conditions before filing Form 2553.
Key eligibility rules include:
Be a domestic corporation or eligible domestic entity
Have no more than 100 shareholders, subject to applicable family shareholder rules
Have eligible shareholders, such as individuals, certain estates, and certain exempt organizations
Generally have shareholders who are US citizens, permanent residents, or resident aliens
Have only one class of stock
Use an eligible tax year
Certain entities are not eligible to elect S corporation status. Because eligibility can depend on the entity structure, ownership, and other circumstances, review the IRS requirements before filing.
S corporations can use a tax year other than the calendar year in certain circumstances. The business may need to satisfy requirements based on its natural business year, ownership tax year, or business purpose tax year.
What types of businesses do not need Form 2553?
Form 2553 is specifically used to make an S corporation election. It is not the form used for every change in federal tax classification.
Situation | Form generally used |
LLC electing to be taxed as a C corporation | Form 8832 |
Partnership electing corporate tax treatment | Form 8832 |
Business changing from an eligible corporate classification back to its default classification | Form 8832 when applicable |
Sole proprietor seeking S corporation taxation | Generally form an eligible entity first, then consider Form 2553 |
If your goal is to have an eligible corporation or LLC taxed as an S corporation, Form 2553 is generally the relevant election form.
What is the deadline for filing Form 2553?
The standard deadline is generally two months and 15 days after the beginning of the tax year in which you want the S corporation election to take effect.
The timing can differ depending on whether the business is newly formed or already operating.
For a newly formed business
A newly formed business generally files Form 2553 within two months and 15 days of its formation date when it wants the S corporation election to apply for its first tax year.
For example, if you form a single member LLC on January 1, 2027, you generally have until March 15, 2027 to file the election for the 2027 tax year.
If you file after the applicable deadline, the business may remain under its default tax classification for the current year. The S corporation election may then begin with the following tax year unless the business qualifies for late election relief.
For an existing business
An existing business generally files Form 2553 within two months and 15 days after the beginning of the tax year for which the election is intended to apply.
For example, if you want an existing eligible business to be treated as an S corporation beginning January 1, 2027, the standard deadline is generally March 15, 2027.
Because filing deadlines can depend on the facts of the business, review the current IRS instructions when determining your filing date.
What is the difference between Form 8832 and Form 2553?
The correct form depends on the tax classification you want.
Goal | Form |
Elect corporate tax treatment for an eligible LLC or partnership | Form 8832 |
Change an entity classification under the applicable classification rules | Form 8832 |
Elect S corporation tax treatment | Form 2553 |
Have a sole proprietorship taxed as an S corporation | Form an eligible entity first, then evaluate Form 2553 |
If you are making an S corporation election, Form 2553 is generally the form you need. You do not generally file Form 8832 first solely to make an S corporation election.
For more information, see the Form 8832 instructions.
What happens after you submit Form 2553?
After you submit Form 2553, the IRS reviews the election.
The IRS generally sends a response within about 60 days.
If the election is accepted, the business generally receives a CP261 notice confirming the S corporation election. Keep the notice with your tax records.
If the IRS does not accept the election, the business may receive a CP264 notice. The notice provides information about the issue. You may need to contact the IRS to determine what happened and whether additional action is necessary.
Keep a copy of the completed Form 2553, shareholder consents, supporting statements, and proof of filing.
Step by Step Form 2553 instructions
Before completing Form 2553, confirm that the business and its shareholders meet the requirements for S corporation status. If you are unsure whether the election is appropriate, consider consulting a CPA or small business attorney.
Part I. Election Information
Part I provides the basic information the IRS needs to identify the business and process the S corporation election.
Business information
Enter the legal name and mailing address of the corporation or eligible entity. If the business uses your personal address, you may use C slash O information where appropriate.
Line A: Employer identification number
Enter the business EIN. If you applied for an EIN but have not received it, follow the Form 2553 instructions regarding how to identify the pending application.
You can also review guidance on how to apply for an EIN.
Line B: Date incorporated
Enter the applicable incorporation or registration date based on the entity's formation records.
For an LLC making an S corporation election, use the information that corresponds with the entity's formation.
Line C: State of incorporation
Enter the state where the entity was incorporated or organized.
The state where an entity was formed may differ from the state where the business operates. For example, some businesses form entities in Delaware while operating primarily in another state.
Line D: Name or address changes
Check the appropriate box if the business name or address has changed since the EIN was assigned or the relevant IRS information was provided.
Line E: Election effective date
Enter the date you want the S corporation election to become effective.
For a new entity, the effective date is generally based on when the business first had owners, assets, or began conducting business, as applicable.
If you missed the initial filing deadline and are requesting late election relief, the effective date should correspond with the tax year for which you are seeking the election.
Line F: Selected tax year
Most small businesses use a calendar year. If you request an eligible fiscal year, additional information may be required in Part II.
Line G: Family as one shareholder
Certain family members may be treated as one shareholder for purposes of the 100 shareholder limitation when the applicable requirements are satisfied.
Check the box when the family shareholder rules apply. Otherwise, leave it blank.
Line H: Authorized representative
Provide the name and contact information for the person the IRS should contact with questions about the election. Include the person's title as requested on the form.
Line I: Explanation of late filing
If the Form 2553 election is late, you may be able to request late election relief if the applicable requirements are satisfied.
Provide an explanation of why the election was late and describe the actions taken after discovering the issue.
The late election relief rules have specific requirements and time limits. Review the current IRS instructions carefully before relying on this relief.
Shareholder consent page
Each shareholder who must consent to the election should provide the required information and signature.
The shareholder section generally includes:
Line J: Shareholder names and addresses
Line K: Shareholder signature and date
Line L: Stock ownership information and acquisition date
Line M: Social Security number or EIN, when applicable
Line N: Shareholder tax year end
Make sure the ownership information agrees with the corporation's records.
Part II. Selection of Fiscal Year
Complete Part II when the business selects a fiscal tax year that requires additional information under the Form 2553 instructions.
A calendar year business generally does not need to complete this section solely because it is using a calendar year.
Line O: Choose one
The options address the reason the corporation is using or requesting the selected tax year.
The choices generally distinguish between:
A new corporation adopting the selected tax year
An existing corporation retaining its tax year
An existing corporation changing to the selected tax year
Select the option that matches the business's circumstances.
Line P: Indicate the test used
The business may need to identify the basis for its fiscal year.
Natural tax year
A seasonal business may qualify to use a natural business year when it meets the applicable requirements. Supporting information may be required to demonstrate the seasonal nature of the business.
Examples can include businesses such as summer vacation rentals, ski resorts, and retailers with significant seasonal activity.
Ownership tax year
A business may qualify based on the tax year used by shareholders who own more than 50 percent of the stock when the applicable requirements are met.
If neither test applies, complete the applicable portion of the form addressing business purpose or backup tax year treatment.
Line Q: Business purpose tax year
If the business wants a tax year based on its business purpose, provide the required explanation and supporting statement.
The statement should explain why the requested tax year is appropriate for the business.
The form also addresses whether the business will make a Section 444 election for the requested tax year.
Line R: Backup fiscal year selection
If the business intends to make a Section 444 election, it may need to complete Form 8716 and file it separately or provide it with Form 2553 when permitted.
The business may also agree to use a calendar year if the requested fiscal year treatment is not approved.
Part III. Qualified Subchapter S Trust (QSST)
Part III applies when a Qualified Subchapter S Trust is involved.
A QSST is a trust that owns S corporation stock and generally has a single income beneficiary who is entitled to the trust's income under the applicable rules.
Many small businesses do not need to complete this section.
If a trust owns S corporation shares, consider consulting an accountant or tax professional to determine whether Part III applies.
Part IV. Late Corporate Classification Election
Part IV addresses certain late corporate classification situations.
If the business files its election on time and Part IV does not apply, this section can generally be skipped.
If the election is late, review the representations and requirements carefully before signing the form and requesting relief.
How do you submit Form 2553?
Form 2553 must be submitted to the IRS using the filing method and destination that apply to the business.
The IRS filing address or fax information can depend on where the business is located. Check the IRS Form 2553 filing instructions for the current submission information.
Before submitting the form, check that:
The business information is complete
The EIN is correct
The requested effective date is correct
The selected tax year is correct
All required shareholders have provided consent
Any late filing explanation is included when applicable
Required supporting statements are attached
The correct IRS filing location is being used
Keep a complete copy of everything submitted and proof that the election was filed.
FAQs
Can a single member LLC file Form 2553?
Yes. A single member LLC can elect S corporation taxation if it is eligible and meets the applicable IRS requirements.
Can an LLC become an S corporation?
An eligible LLC can elect S corporation tax treatment by filing Form 2553. The election changes the LLC's federal tax classification for tax purposes. It does not necessarily change the LLC's legal entity status under state law.
What if I miss the Form 2553 deadline?
You may be able to request late election relief if you meet the applicable IRS requirements. Part I, Line I is used to provide an explanation for a late election.
Do I need Form 8832 with Form 2553?
Generally, no. If you are making an S corporation election, Form 2553 is the relevant election form.
Can I choose a non calendar tax year?
Yes, in certain circumstances. The business must satisfy the applicable requirements and may need to complete Part II of Form 2553.
How long does the IRS take to respond to Form 2553?
The IRS generally responds within about 60 days. An approved election generally results in a CP261 notice, while an unsuccessful election may result in a CP264 notice.
What should I do after my S corporation election is approved?
Keep the IRS approval notice and update your business tax and payroll processes to reflect the S corporation election. Owners should also understand the applicable rules for shareholder compensation, payroll, business income, and distributions.
For businesses considering an S corporation election, understanding the tax classification before filing can help you determine whether the election fits your circumstances.
