By submitting Form 2553 to the Internal Revenue Service, you may convert your limited liability business (LLC) to a S corporation (S corp) (IRS).
To discover how and why to pick the S corp tax type for your LLC, see our Convert LLC to S Corp tutorial below.
How to Convert an LLC to a S Corp
Should I First Form a Corporation?
When Should You Use S Corp for Your LLC S Corp Calculator
Table of Contents
How to Convert an LLC to a S Corp
LLCs and corporations utilise Form 2553 to elect the S corp tax classification with the IRS.
An LLC does not have to become a corporation before obtaining the S corp tax status.
Instructions for IRS Form 2553
To complete Form 2553 and elect S corp status for your LLC, follow these three steps:
Examine S Corp Eligibility
2553 Check Form Dates of Due
Form 2553 must be completed and filed.
Step 1: Determine S Corp Eligibility
To qualify for S corporation classification, the following claims must be true:
An qualifying business organisation submitted Form 2553 on time. Domestic corporations and limited liability companies are examples of eligible business entities.
There are a maximum of 100 stockholders.
Individuals are shareholders.
Shareholders are either permanent residents or citizens of the United States.
There is just one kind of stock in the company.
The election is approved by all shareholders.
 Step 2 Check Form 2553 Due Dates
You must submit Form 2553:
You must make the S corp election no later than two months and fifteen days after the start of the tax year.
You may make the S corp election at any point during the year before the tax year.
Businesses may choose from a number of tax years while being eligible for S corp election. View the “General” section of the IRS Form 2553 instructions for further information.
Section I is reserved for late filers. Review the “General” section of the IRS instructions to Form 2553 for information on late-filer relief.
Step 3: Form 2553 must be completed and filed.
Begin by downloading the Form 2553 PDF from the IRS website. Review the “Specific Instructions” section of the IRS Form 2553 instructions for further information.
How to Fill Out Form 2553:
Part I of Form 2553 contains your company’s name and address, incorporation date, and tax year.
Section G is optional for applicants who do not have more than 100 shareholders.
View the guidelines for assistance in selecting a tax year in section F.
Section I is reserved for late filers. Review the “general” portion of the IRS instructions to Form 2553 for information on late-filer relief.
The last portion must contain all shareholders’ names and addresses, as well as their signatures agreeing to the S corp election.
Part Two
Part II is only required if you chose box 2 or 4 in Part I, Item F.
Part II might be difficult to accomplish. If you have any questions or concerns, we recommend examining the “particular instructions” portion of the IRS instructions to Form 2553 and talking with an accountant.
Section III
Part III is solely applicable to subchapter S qualifying trusts. The majority of small company owners will not fill out any of the information in this section.
Part IV is hardly utilised. It is only completed if “a late entity classification election was planned to become effective on the same day as the S corp election.” If this is the situation for your small firm, refer to Part IV of Form 2253’s “particular instructions.”
Form 2553 should be sent to the following address:
The state in which your main company, office, or agency is situated determines where to submit form 2553.
Set 1 of the states:
Connecticut, Delaware, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, Washington, D.C., West Virginia, and Wisconsin are among the states represented.
Department of the Treasury Internal Revenue Service Form 2553 Mailing Address
64999 Kansas City, Missouri
Fax Number (855) 887-7734 for Form 2553
Set 2 of the states:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, and Wyoming are among the states that have a state of the union.
Department of the Treasury Internal Revenue Service Ogden, UT 84201 Form 2553 Mailing Address
Fax Number (855) 214-7520 for Form 2553
Should I convert my LLC to a corporation before deciding on a S Corp?
An LLC does not have to become a corporation before obtaining the S corp tax status.
There is just one reason to incorporate before adopting S corp taxes for your LLC.
If you carry over a considerable amount of earnings from year to year, it makes more sense to form a company taxed as a S corporation rather than an LLC taxed as a S corporation.
How to Convert an LLC into a S Corp Taxed Corporation:
Step 1: If permitted by the state, convert an LLC to a corporation. For further information, contact your state’s business section.
Step 2: Complete all corporate requirements. To discover more about corporation bylaws, meeting minutes, the incorporators statement, and other topics, visit our How to Start a Corporation page and pick your state.
Step 3: Submit IRS Form 8832 to convert your business organisation (as reported to the IRS) from an LLC to a corporation. This form may be submitted with a future date within 12 months or backdated 75 days.
Step 4: As described above, file IRS Form 2553 to opt S corp for your newly created company.
When Should You Choose S Corp Status for Your LLC?
It is predicted that if a company can pay its owners “fair wages” and at least $10,000 in dividends every tax year, then a multi-member LLC should choose the S corp classification.
NOTE: Most small firms do not produce enough profit in the early stages to justify electing S corp status.
Select S Corp Status if:
You’re a successful company owner who knows how much money you make each year.
You are already dealing with the S Corp procedures, including as accounting and payroll regulations.
Even after paying the “fair compensation,” your company earns enough to benefit from S corp classification and save money.
Select Default Tax Status if:
You are a new entrepreneur who is unsure of how much profit you will generate each year.
You don’t want to bother with formalities like accounting and payroll.
Your company does not generate enough revenue to benefit from S corp classification.
Tax Implications of Converting an LLC to a S Corp
Most small company owners spend their profits to develop their companies and earn enough profit to cover the increased expenses of operating as a S corporation (or to pay a reasonable salary in addition to enough of a distribution to lead to actual tax savings).
Typical LLC Tax Structure
The LLC’s earnings after costs is taxed on the owner(s) personal tax return under a default tax structure. The sum is then subject to self-employment taxation by the owner.
If the LLC has more than one member, each owner is taxed on their portion of the earnings on their personal tax return.
Election of S Corporation
You must pay yourself a fair income if you are a “active shareholder” under S corp classification, that is, if you have an active involvement in corporate activities.
To make the S company financially viable, you must also pay yourself at least $10,000 in dividends.
By avoiding paying FICA taxes on dividends, S corp owners may save around 16% on self-employment taxes under the correct conditions.
On their salaries, business owners pay both FICA and income taxes, but any distributions (or draws) are only subject to income taxes.
Should I First Form a Corporation?
An LLC does not have to become a corporation before obtaining the S corp tax status.
In fact, we advise against creating a business and electing to be taxed as a S corporation. This is due to the S corp negating all of the advantages of a corporation.
S Corporation Savings Calculator
Our S corp calculator will help you determine if the S corp tax structure is ideal for your small company.