Forming an S-CorporationIn order to create an S-Corporation, the organizers of the business must take the following steps:
- Draw up articles of incorporation, by-laws, and various resolutions,
- Incorporate the business as a corporation in the state where the company will conduct the bulk of its business,
- Verify that the corporation meets the eligibility criteria for being an S-Corporation, and
- Notify the IRS of its intention to be taxed as an S-Corporation by filing IRS Form 2553 no later than the 15th day of the third month following its date of incorporation.
Electing S-Corporation StatusCorporations elect S-Corporation status using IRS Form 2553. Each shareholder at the time the form is filed must sign the form.
When to Submit Form 2553IRS Form 2553, Election by a Small Business Corporation (instructions, PDF form) must be filed:
- Before the 16th day of the 3rd month of the corporation's tax year,
- Before the 15th day of the 2nd month of a tax year lasting 2-1/2 months or less,
- At any time during the tax year before the tax year the election is to take effect,
- At any time after these deadlines if the corporation follows special rules for making a late S-corporation election.
Examples of Form 2553 DeadlinesABC Corporation just incorporated on July 1st. ABC has until October 16th to file Form 2553 for the S-Corporation election to be valid for the company's first year of operation.
DEF Corporation just incorporated on November 1st. Since the first tax year will be less than 2-1/2 months (just Novemer 1-December 31), DEF has until January 15th of the following year to file Form 2553 for the S-Corporation election to be valid for the company's first year of operation.
GHI Corporation has been incorporated for several years and is currently taxed as a C-corporation. GHI can file Form 2553 by December 31st if the company wishes to convert to an S-corporation for the following year.
JKL Corporation just incorporated on February 14th. It did not file Form 2553, however it wishes to be taxed as an S-Corporation beginning with its first year of operation. JKL will need to follow carefully the special rules for making a late election for S-Corporation status.