A plain-language guide to the S corporation election
Electing S corporation status, one field at a time
Whether your corporation or LLC can elect, how IRS Form 2553 is filled in and signed, the deadline that decides which tax year it covers, what to do if you missed it, and what changes once the election is accepted.
Before you file: the election at a glance
- Officer of the company
- Every shareholder consents
- Spouse consent, where state law requires it
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No scores, no leaderboards
Where one route suits better than another, it is said in words, with the reason.
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Rules read from the IRS
Eligibility, deadlines and relief are taken from the IRS instructions and named as such.
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A worksheet, not a form
The sheet above is a planning aid. The election itself is made on the official IRS form.
Tab order
The election, in the order you work through it
Five steps from checking you qualify to filing the confirmation away. Each one depends on the step before it.
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Confirm eligibility
The corporation or LLC, its shareholders and its stock all have to qualify before anything is filed.
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Choose the effective date
The election starts at the beginning of a tax year, so pick the year it should apply to.
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Collect consents
Every shareholder at the time of the election signs a consent, and an officer signs the form.
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File Form 2553
Send it to the IRS by the deadline for the year you chose, by mail or fax as the instructions direct.
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Keep the acceptance
The IRS writes back to confirm the election. That letter belongs with the company records.
How this site is organised
Four parts, like the sections of a form
Eligibility, filing, deadlines and what follows. Each part sets out the questions it answers and the short answer to each, with the detail to follow in its own pages.
Part one: eligibility
Who can make the election at all. If any line here fails, the election is not available until it is fixed.
- 01 What kind of entity can elect? Rule
A domestic corporation, or an LLC that is eligible to be taxed as a corporation. Certain financial institutions and insurance companies are excluded.
- 02 How many shareholders? Rule
No more than one hundred. Family members can be counted together as a single shareholder for this limit.
- 03 Who may own shares? Rule
Individuals who are US citizens or residents, estates, and certain trusts and exempt organisations. Partnerships, corporations and nonresident aliens may not.
- 04 What about classes of stock? Rule
Only one class. Shares may differ in voting rights, but every share must carry the same rights to distributions and liquidation proceeds.
Part two: filing the form
The election is made on IRS Form 2553. These are the parts people most often get wrong.
- 01 Who signs? Check
An officer authorised to sign for the company, plus a consent from every person who is a shareholder when the election is made.
- 02 Does an LLC file anything else first? Choice
Usually not. An eligible LLC that files Form 2553 is treated as having elected to be taxed as a corporation at the same time.
- 03 Which tax year? Choice
Most S corporations use the calendar year. A different tax year needs a business reason, which the form asks you to state.
- 04 Where does it go? Check
To the IRS address or fax number the form instructions list for the company’s location. It is not filed with the state.
Part three: deadlines and late relief
Timing decides which tax year the election covers. Missing the date is common and often fixable.
- 01 When is the form due? Deadline
No later than two months and fifteen days after the start of the tax year the election should apply to, or at any time during the year before it.
- 02 What happens if it is late? Deadline
The election normally takes effect from the following tax year instead of the one you intended.
- 03 Can a late election be rescued? Choice
Often. The IRS has a simplified procedure for late elections where there was reasonable cause and the request is made within the window it sets.
- 04 How is relief requested? Check
By filing the form with a statement explaining the reasonable cause, following the late-election steps in the form instructions.
Part four: after the election
What changes once the IRS accepts the election, and what stays the same.
- 01 Do owners still draw a salary? Rule
Shareholders who work in the business are expected to take reasonable pay through payroll, with the usual employment taxes withheld.
- 02 Which return does the company file? Rule
An annual S corporation return on Form 1120-S, with a Schedule K-1 to each shareholder showing their share of income.
- 03 Does the state follow along? Check
Not always. Most states follow the federal election, some need their own filing, and a few tax S corporations differently.
- 04 Can the election be undone? Choice
Yes. Shareholders holding more than half of the shares can revoke it, and breaking an eligibility rule ends it automatically.
Validation
Checks to run before the form goes in
The rules a filed election is most often rejected or later undone under. Each is worth confirming against the company records first.
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Every shareholder has consented
A missing consent from anyone who held shares on the election date is one of the most common reasons an election fails.
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The effective date starts a tax year
The election runs from the beginning of a tax year, not from the day the form is signed.
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The deadline for that year has not passed
If it has, decide between taking effect next year and asking for late-election relief.
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Ownership still qualifies
A share sold to an ineligible owner, or a second class of stock, ends the election.
No scores and no rankings here. Where a filing service is a better fit than doing the election yourself, the reason is given in words.