As much as starting and running a business involves grit and good ideas, it also involves the delightful tedium of paperwork—and knowing which forms the government needs from you based on the type of business you own.
That’s where IRS Form 8832 comes in. Businesses use this form to elect how they will be classified for federal tax purposes. If that sounds like gibberish to you, don’t worry: Take a look through our FAQ to decipher all you need to know about this business-specific tax form.
Why is Form 8832 important?
The bottom line: It can affect your bottom line. Nobody wants to pay too much in taxes. According to UpCouncil, if you don’t fill out Form 8832, your business will be given a default tax classification. For example, a multi-member LLC gets taxed as a partnership unless you change the tax status. You could pay thousands of dollars less, just by filling out this form with your correct tax classification.
Which types of businesses should fill out Form 8832?
Partnerships and limited liability companies (LLCs) should file IRS Form 8832. Businesses file this form if they want to be taxed as different kinds of companies, like a corporation. Note: If you want to be taxed as a corporation, you need to file articles of incorporation with your secretary of state first, and then file Form 8832.
How do I file Form 8832?
- Fill out the form online right here.
- Follow the instructions to complete the two-page form (three pages if “late election relief” is desired). Don’t worry: Instructions are part of the form.
- Every single partner or member of the business must sign the form. An authorized representative for the business must also sign if you need to fill out Part II for late election relief.
- File the completed form with the IRS Service Center for your state indicated on page 5 of the form. Also, send a copy of Form 8832 with your next business tax return.
- The IRS will either accept or deny the filing request. They will notify the business within 60 days with the decision.
What information do I need to fill out Form 8832?
- Business name
- Business address
- Business phone number
- Employer Identification Number (EIN)—you must have an EIN (a tax ID for businesses) in order to submit Form 8832.
- If the business has only one owner, indicate the name of the owner in Question 4 along with the owner’s social security number or “identifying” number.
What if I don’t yet have an Employer Identification Number?
If you don’t have an EIN yet, you can easily apply for one for free at IRS.gov.
Do I need to change my Employer Identification Number if I change my tax classification?
No. You generally do not need to change your EIN if you switch your tax treatment.
Who can sign my entity’s Form 8832?
The signature is required in Part 1, Question 9. For this question, provide the name, title, and phone number of the person that the IRS should contact should there be any questions about your form. Form 8832 should be signed by a business owner, manager, or officer of the business. If the election is going to be active before the date you filed the form, it needs to also be signed by anyone who was an owner during the active period but is no longer an owner.
Who can be an “authorized representative” for my business on Form 8832?
This would be your tax advisor.
Is this the last time I have to handle Form 8832?
No. You should also attach a copy of the form to your federal income tax return for that year.
How long will this take me to fill out?
The IRS estimates it takes just 17 minutes!
Are there any businesses that should not use Form 8832?
Yes. UpCouncil provides this list of businesses that Form 8832 may not be for:
- Insurance companies
- State-chartered banks (if FDIC-insured)
- Foreign corporations
- A business owned by a state or by a foreign government
- Tax-exempt organizations
- Real estate investment trusts (REITs)
- Businesses that want to be taxed as S corporations. S corporations should file Form 2553.
If I run a sole proprietorship or partnership, can I use Form 8832 to be taxed as a corporation?
No. If you want to be taxed as a corporation, you first need to officially form a corporation by filing articles of incorporation with the secretary of state in your business’s home state.
If I own a corporation, can I use Form 8832 to be taxed as an LLC, sole proprietorship, or partnership?
Similarly, no. Most states require official conversion through the secretary of state in order to dissolve corporate tax status. Contact your state’s secretary of state office to learn more.
If I am an LLC that’s currently taxed as a C corporation and want to be taxed as a partnership (multi-member LLC) or sole proprietorship (single-member LLC), should I file Form 8832?
Yes, Form 8832 is the correct form to fill out in this case.
Can partners within a corporation be taxed differently than other partners within the same corporation?
No. All partners within a corporation must be taxed consistently—the same as the business.
How should I classify my business?
FitSmallBusiness has a great guide for selecting the best business structure for your business. However, consult with your tax advisor before undergoing any elections.
When would my business need to fill out Form 8832?
You need to fill out this form either:
- When you first start your business.
- If your business undergoes a change in tax classification. You can indicate on the form which purpose your 8832 fulfills.
How do I know if should I change my current classification?
There are a few reasons you might want to change your current tax classification.
- If you have a multi-member LLC that was taxed as a partnership but you would now like to be taxed as a C corporation.
- If you have a multi-member LLC that is currently taxed as a C corporation but you want to go back to default partnership treatment.
- When a single-member LLC adds more members, the business will be taxed as a partnership unless the business files Form 8832 to change the classification.
Consult your tax advisor if you’re unsure whether you should change your current tax classification.
I’m already in business—can I still fill it out?
Yes. Form 8832 can be filled out anytime during the course of a business’s lifetime. Partnerships and LLCs especially might benefit from filing Form 8832 if they haven’t already, or if they previously filed as a corporation.
Is there a deadline to fill out Form 8832?
The “deadline” to file Form 8832 is asynchronous. It can be filed anytime you start a business or during a business’s lifetime. However, the filing date is important! The tax status for the business is effective either:
- Up to 75 days before filing the form.
- Up to one year after filing the form.
- If no date is entered on the form, the filing date is the effective day.
You want to select the proper date for your tax classification to begin so that you can be taxed effectively. Ask your accountant for advice on the right effective date—there may be strategies for your type of business in terms of a better effective date.
What if I need to file outside of the set effective filing dates?
If you don’t file within the correct time frame (75 days before the form is filed, or one year after) you can always seek late election relief. According to FitSmallBusiness, You might be eligible for late election relief if all the following four factors apply to you:
- You have already submitted a Form 8832 and were denied solely because it was filed late.
- Your deadline for filing taxes hasn’t yet passed, or you are up-to-date on all your taxes.
- There’s reasonable cause for the delay.
- Three years and 75 days haven’t passed from the requested effective date of the election.
If these apply to you, explain the reasonable cause for delay in the blank space on the form. If not, consult your tax advisor.
How often can I make changes to my tax classification?
You can only change your tax status every five years. However, FitSmallBusiness says there are exceptions:
- The previous election was for a newly-formed entity, and the election was effective on the business’ date of formation.
- More than 50% of the business’ ownership interests have changed since the previous election (for example, a business that had four owners may be exempt from the five-year rule if three of the owners changed after the initial election of tax status).
What about affiliates?
If the owner or owners of your business are a group of affiliated companies that file a consolidated return, you need to specify the parent company and its EIN number in Question 5. This question is to ensure that each company in the group receives the correct tax treatment.
What if my business was formed outside the United States?
If your business was formed somewhere other than the United States, then provide the country where the business was created. Some US territories are considered foreign entities for tax purposes. See page 7 of Form 8832 for a list of countries if you’re unsure. BrightTax has a great guide for Form 8832 for foreign entities.
from Fundera Ledger https://www.fundera.com/blog/form-8832