Can You Fill Out a 2553 Before the Articles of Incorporation?

By Mary Jane Freeman

A business entity that wishes to become an S corporation must file Form 2553 with the IRS. However, before a business can submit this form, it must first qualify for S corporation status and must file articles of incorporation with the state to incorporate the business.

A business entity that wishes to become an S corporation must file Form 2553 with the IRS. However, before a business can submit this form, it must first qualify for S corporation status and must file articles of incorporation with the state to incorporate the business.

Articles of Incorporation

People who want to form a corporation must complete and file articles of incorporation with their state regulatory agency, which is usually the secretary of state. While laws vary among states, the information contained in the articles typically includes the business name and address, the description of business purpose, the name and address of the registered agent and incorporator, and the number of shares the corporation is authorized to issue.

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S Corporation Status

Corporations are separate and distinct legal entities from their owners -- the shareholders. Traditional corporations are C corporations and are typically taxed twice. Corporations first pay taxes on earned profits and again at the shareholder level when shareholders pay taxes on the dividends they receive. To avoid this double taxation, some corporations elect to become S corporations for tax purposes. As an S corporation, a corporation is not taxed directly, but rather its profits and losses are passed through to the shareholders, who pay taxes on their personal income tax returns. To change its status from a C-corp to an S-corp, a corporation must file Form 2553, Election by a Small Business Corporation, with the IRS. However, it must qualify as an S corporation before doing so. Generally, this requires that the business entity is already a corporation, has no more than 100 shareholders and has one class of stock.

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A Comparison of an LLC, Sole Proprietor, S Corp, & C Corp

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S Corp Vs. Corp

Incorporating a business creates a separate legal entity and protects shareholders with limited liability. However, a corporation can be either a C corporation or an S corporation. An S-corp is a C-corp that has made a special election. The differences relate to who can be a shareholder and how the company and shareholders pay taxes on the business's profits and losses.

Tax Planning for an S Corporation

If you incorporate or create a limited liability company (LLC) for your small business, you may be able to designate it as an S corporation for federal income and self-employment tax purposes. Most of the income tax planning for an S corporation will be of more use to a corporation than an LLC, but LLC members still stand to save a substantial amount of self-employment tax with an S corporation election.

The Steps in Starting an S-Corp

An S corporation is simply an ordinary corporation that has elected to be taxed under Subchapter S of the Internal Revenue Code. To start an S corporation, you must form a corporation that qualifies under IRS rules and then apply for S corporation status with the IRS. The IRS routinely approves applications from qualified entities. Limited liability companies may also elect to be taxed as S corporations if they qualify.

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