Form 2553 (S-corp election)
IRS form to elect S corporation tax treatment for eligible entities.
Definition
Form 2553 elects S corporation tax treatment under IRC subchapter S. Only US citizens and resident aliens can be S corporation shareholders; non-residents cannot. LLCs file Form 2553 with Form 8832 (entity classification election) to elect S corp treatment.
Context
S corp election can reduce self-employment tax for US-citizen LLC owners with active income. Not available to non-resident foreign owners.
Example
A US-citizen LLC owner earning $200K in active service income elects S corp treatment to reduce SE tax. The reasonable salary portion is subject to FICA; remaining distributions are not.
Common pitfalls
- Strict eligibility requirements (US citizen/resident shareholders, limited shareholders, one class of stock).
- Reasonable-salary requirement can be challenged by IRS.
- Not available to non-residents.