Can an LLC File a 2553?

By Larissa Bodniowycz, J.D.

Can an LLC File a 2553?

By Larissa Bodniowycz, J.D.

An LLC is not a recognized entity for federal tax purposes and must instead elect an alternate tax classification, such as an S corporation, a C corporation, a sole proprietorship, or a disregarded entity.

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Form 2553

The Election by a Small Business Corporation (Form 2553) is the form an entity must file with the IRS to elect S corporation tax status. S corporation status offers “pass-through" taxation, where the business' profits are not taxed directly and instead pass through to the business owners. These owners then report business income and losses on their own individual tax returns and pay taxes on any LLC income according to their individual income tax rates. Therefore, an LLC can avoid double taxation on business income by electing S corporation tax status.

Form 2553 will require information about an LLC's date of incorporation, employer identification number, individual shareholders, and ownership percentages. Each shareholder must sign Form 2553. An LLC can file Form 2553 with the IRS if it properly qualifies as an S corporation.

S Corporation Qualification

Not every LLC qualifies S corporation status. An LLC must meet each of the following requirements to file Form 2553:

  • Be a domestic corporation
  • Have only certain types of shareholders allowed by IRS rules such as individuals, certain types of trusts, and estates
  • Not have shareholders that are partnerships, corporations, or nonresident aliens
  • Have 100 shareholders or less
  • Have only one class of stock
  • Not be one of the classes of corporations that are ineligible under IRS rules, such as insurance companies and international sales corporations

When to File

Form 2553 must generally be filed no more than two months and 15 days after the beginning of the tax year the election is to take effect. Alternatively, you can file Form 2553 at any time during the year before the tax year the election is to take effect.

Example: First Year Business

You form an LLC on Jan. 5. Your two-month and 15-day window to file ends on March 19. To elect S corporation status for this first year, you must file Form 2553 by this date. The IRS provides certain exceptions for filing a late Form 2553.

Example: Existing Business

Your LLC has already been doing business for some time, but you have filed previous tax returns under an alternate tax classification. If you want to elect S corporation status for your next tax year beginning Jan. 1, your two-month and 15-day window would end on March 15. You must file Form 2553 by March 15 of the year you want your S corporation election to take effect (or, alternatively, you may file it at any time in the prior tax year).

Additional Forms

In addition to filing Form 2553, an LLC filing under S corporation status must also annually file a U.S. Income Tax Return for an S Corporation (Form 1120S). Form 1120S is an informational tax return that reports the business' annual income, profits, losses, deductions, and tax credits.

An LLC electing S corporation status must also provide each shareholder with Schedule K-1, which reports each individual shareholder's distribution of LLC income. Each individual shareholder must include Schedule K-1 information on his individual tax return.

A business attorney with tax experience or an accountant can help you prepare your LLC's Form 2553 and other tax filings.

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