However, for federal tax purposes, you’ll be taxed as an S-corp. If you have an LLC, filing this form won’t completely change anything from a legal standpoint, your company will still be an LLC. Who Can File IRS Form 2553?Ĭ-corps and LLCs can follow our IRS Form 2553 instructions to elect S-corp tax status. Although tax obligations vary by business, C-corporations tend to pay the highest taxes because they get hit with taxation twice-once at the corporate level, and again at the shareholder level for dividends. Many business owners choose to file IRS Form 2553 and have their company taxed as an S-corporation in order to lower their taxes. ![]() In 2019 when a series of business tax cuts took effect, owners of S-corps and other pass-through entities were given the option to deduct 20% of their net business income before taxes are calculated. The income gets taxed at the shareholders’ personal income tax rates. Instead, shareholders report their share of the business’s income, losses, credits, and deductions on their personal income tax returns. This means that S-corps don’t pay a corporate tax. S-corporations are pass-through entities. S-corps are corporate entities like C-corps but they’re taxed significantly differently. Why Would You File IRS Form 2553?īy filing IRS Form 2553, you elect to have your C-corporation or LLC treated as an S-corporation for federal tax purposes. LLCs can choose whether to be taxed as a pass-through entity or as a corporation. Shareholders also pay a dividend tax on any distributions from the corporation. A C-corp pays a 21% corporate income tax on the business’s net taxable income for the year. This means business owners report their share of business income and losses on their personal tax returns.īy default, corporations are regarded as C-corporations for tax purposes. Default Tax Classification Entityīy default, sole proprietorships and general partnerships are regarded as pass-through entities for tax purposes. When you form a new business entity, the IRS will tax you based on the default tax classification for that type of business. Overview of Business Taxation and S-Corporations Overview of Business Taxation and S-Corporations. ![]() Below, get step-by-step instructions on how to fill out this tax form, deadlines, and important things you should know prior to filing Form 2553. To elect S-corp tax treatment, businesses must fill out and submit Form 2553 to the Internal Revenue Service (IRS). Instead of the company paying a corporate tax, the owners of an S-corp report business income on their personal tax returns. Some companies are able to save money on small business taxes by electing to be taxed as S-corporations. ![]() You can have it delivered via private delivery services approved by the IRS, a list of which are available at IRS.gov/PDS. ![]() After electing S-corp status, the company is taxed as a pass-through entity, so the business’s income and losses are reflected on the owners’ personal tax returns. The form is due no later than two months and 15 days after the beginning of the tax year in which the election takes effect. Businesses must file Form 2553 with the IRS to elect to be taxed as an S-corporation.
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