Financial Glossary
Form 2553 (S Corporation Election)
Form 2553, Election by a Small Business Corporation, is the IRS form an eligible corporation or LLC files to elect S corporation tax treatment. Filing it lets the entity pass income, losses, and deductions through to shareholders' personal returns rather than paying tax at the corporate level. The election must be filed within the timing window the IRS specifies relative to the tax year it is intended to take effect, and the entity must meet eligibility requirements such as having only allowable shareholders and a single class of stock.
Problem & Application
Profitable owner-operated businesses, including STR and hospitality LLCs, often elect S corp status on Form 2553 to reduce self-employment tax by paying owners a reasonable salary plus distributions. Missing the filing window or botching shareholder eligibility can void the election or force a late-election relief request. Because deadlines and eligibility rules are specific, confirm current IRS instructions before filing.
In Short
Form 2553 is the gateway to S corp tax treatment, and getting both the timing and eligibility right protects the savings the election is meant to deliver.