How to File IRS Form 8832: C-Corp Election
Always document your rationale and communicate changes with your partners, board, or advisors before submission. There are pros and cons to every type of business entity; each type comes with their own legal and financial implications, as well as their own procedures for setting up. Your safest bet is to consult with your tax advisor before undergoing any elections.
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Include any specific circumstances that prevented you from knowing about this requirement. That’s because the IRS’s “check-the-box” regulations allow certain business entities to choose how they’re classified for federal income tax purposes. Since a business’s classification determines how it’s taxed, this can be an extremely important and valuable opportunity. For instance, a single owner electing to be disregarded as a separate entity by the IRS would typically file Form 8832 to officially establish that status.
Form 8832 Instructions:
Once a business has elected a new classification by filing Form 8832, it is subject to the 60-month limitation rule. After making this election, the business is typically restricted from making another classification change for 60 months, or 5 years. This rule prevents businesses from exploiting frequent changes to their classification for tax advantages.
Who Must File Form 8832?
If you’ve decided to change your business’s entity classification, there are a few quick steps to follow. If you don’t use Form 8832 to make an election, the IRS will tax you based on your default classification, and you could end up paying more than you need to. By making the proper election, however, you may how to file irs form 8832 be able to save thousands of dollars every year. However, it’s important to note that there are exceptions to the 60-month rule.
This choice can be advantageous depending on how much profit your LLC earns, your desired tax savings, and your long-term business entity strategy. There is no formal deadline for filing Form 8832, but when you file it, it can have implications on when your new tax classification kicks in. For instance, your new classification cannot take effect more than 75 days prior to the date the election is filed or later than 12 months after filing, according to the IRS.
How to Complete and File IRS Form 8832 for Your LLC
Most limited liability companies (LLCs), partnerships, and foreign entities can use this form if they want to switch their classification. I was in a very similar situation about a year ago – LLC operating for 13 months when I discovered I needed Form 8832. I specifically noted the date I learned about the requirement (during a consultation for my first business tax return) and that I filed the form within 10 days of that discovery.The IRS approved my late election after about 8 weeks. What I think really helped was being very specific about my timeline and demonstrating that I took immediate action. The success stories in this thread show that the IRS really does consider each case individually when there’s a legitimate reasonable cause. IRS Form 8832 is used to make an entity classification election for tax purposes.
- The IRS is actually quite understanding about late Form 8832 elections if you provide a legitimate reasonable cause.
- This scenario explores a couple of those situations and how they can be resolved.
- Double-check everything—errors can delay processing or even lead the IRS to reject your form.
- These include LLCs, partnerships, and certain foreign entities not automatically classified as corporations under IRS regulations.
Form 8832 is how eligible businesses tell the IRS they want to change their default tax classification. If you’ve formed a US business or own a foreign entity with US tax exposure, understanding IRS Form 8832 (Entity Classification Election) is crucial. This form allows you to choose how your business is taxed, whether as a corporation, partnership, or disregarded entity. At the state level, the two common options for business owners are the corporation and the limited liability company (LLC). Corporations are administratively complex with three levels of control, with each requiring robust record keeping to avoid creating opportunities to pierce the corporate veil.
- There’s no need to file Form 8832 a second time unless you want to change your entity classification again.
- However, in most cases, you can only change your classification once every five years, so you may have to wait.
- Use the list below, which is provided by the IRS, to determine where you need to mail your completed form based on the state where you do business.
- It’s usually best to send a copy of Form 8832 with the original signatures (in other words, don’t send a copy of the original form).
However, if you’ve been filing taxes under the wrong entity classification in previous years, you might need to amend those returns once your Form 8832 is approved, which could potentially result in different tax amounts. You also have to attach a copy of Form 8832 to your business’s federal tax or information return for the tax year you made the classification election. If the business itself isn’t required to file a return for that year, the business’s owners need to attach a copy of Form 8832 to their federal tax returns for the tax year that the election is effective.
General relief rules for S corporation elections
That hits all the key points the IRS typically looks for in reasonable cause determinations. There wasn’t any required waiting period – I received the rejection letter and submitted the new application with a better reasonable cause statement about two weeks later. You can resubmit immediately if you want.I didn’t have to pay any penalties when it was accepted. The IRS treats an approved late election as if it was filed on time.
This article will explain how to elect a tax classification that is different from the default classification the IRS will use for your business entity and enhance asset protection and maximize tax savings. If you miss the deadline to file Form 8832, your entity’s default or previously elected tax classification remains in effect, potentially leading to unexpected tax liability, reporting complications, or lost tax planning opportunities. This can affect eligibility for certain grants, investments, or nonprofit status, so it’s imperative to monitor filing deadlines closely and pursue late election relief when authorized by the IRS. Proactive planning and organizational communication are essential to avoid these potentially costly missteps. Form 8832 is a tool for businesses to elect their tax classification with the IRS. It allows entities like limited liability companies (LLCs) and partnerships to choose how they are taxed—either as corporations or disregarded entities.
It saved me from paying him to draft it, which would have cost several hundred dollars. However, the effective date for your business’s classification election can’t be more than 12 months after the date Form 8832 is filed. If you write-in a later date, the election will be effective 12 months from the filing date. After the IRS reviews your application, they’ll send a confirmation letter within approximately 60 days, confirming that your election has been accepted and the effective date of the new tax election status.
This election can provide liability protection and potential tax planning advantages, especially in cases where personal tax rates would otherwise be higher or where the owner is seeking to raise capital and issue shares. For nonprofit organizations with affiliated business ventures, this classification can help clarify the separation between charitable activities and unrelated business income for compliance and reporting purposes. For example, a single-member LLC (limited liability company) is taxed as a disregarded entity by default, and a multi-member LLC is taxed as a partnership. In both cases, the LLC members will be responsible for the business’s taxes on their individual tax returns.
Eligible businesses use Form 8832, Entity Classification Election to declare themselves a corporation, partnership, or entity disregarded as separate from its owner. LLCs can elect to be treated as a C Corp or revert back to their status as sole proprietor or partnership. There are some benefits to altering your status, such as reducing your tax burden. Once processed, the IRS issues a formal determination letter confirming the entity’s new tax classification.