As much as starting a business (and running it) involves creativity, grit, and great ideas, it can also involve some pretty tedious paperwork—and knowing which forms the government needs from you based on the type of business you own. IRS Form 8832 is just one of those forms.
Depending on their business entity, certain companies can use Form 8832 to elect how they’d prefer to be classified for federal tax purposes. Without filling out this form, their business will defer to their default tax status.
If that sounds like gibberish to you, don’t worry: Take a look through our Form 8832 FAQ to figure out whether your business is eligible to complete IRS Form 8832 and, if so, how to fill it out appropriately.
21 Answers to Common Form 8832 Questions
Single-member and multi-member LLCs can fill out Form 8832 if they’d like to be taxed as a C-corporation, a partnership, or a sole proprietorship. Without filling out this form, single-member LLCs are taxed as sole proprietorships by default, and multi-member LLCs will be taxed as partnerships.
That’s the gist of it. Here are more need-to-know details about this tax form.
1. Why is Form 8832 important?
The bottom line: It can affect your bottom line. If you don’t fill out Form 8832, your business will be given a default tax classification—which may result in paying more taxes than you really need to. If you choose wisely (with the help of your accountant), changing your tax election status can potentially save you thousands of dollars per year.
2. Which types of businesses should fill out Form 8832?
Only eligible businesses, including U.S.-based partnerships, U.S.-based limited liability companies (LLCs), and certain foreign entities can file IRS Form 8832 to elect to be taxed as a C-corporation, a partnership, or a sole proprietorship.
Heads up: 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.
3. How do I file Form 8832?
Good question!
- 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.
4. What information do I need to fill out Form 8832?
You need:
- Business name
- Business address
- Business phone number
- Employer identification number (EIN). Keep in mind that 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.
5. 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.
6. 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.
7. 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 also needs to be signed by anyone who was an owner during the active period but is no longer an owner.
8. Who can be an “authorized representative” for my business on Form 8832?
This would be your tax advisor.
9. 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.
10. How long will this take me to fill out?
The IRS estimates that it takes just 17 minutes to fill out this form.
11. Can I use Form 8832 to elect to be taxed as an S-corporation?
No. Businesses that want to be taxed as S-corporations need to fill out IRS Form 2553.
12. Can partners within a corporation be taxed differently than other partners within the same corporation?
No. All partners within a corporation must be taxed according to the same classification.
13. How should I classify my business?
There are pros and cons to every type of business entity; every 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.
14. When would my business need to fill out Form 8832?
You can 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.
On the form itself, you’ll indicate which of these circumstances applies to you, and the way in which you fill out the form differs accordingly.
15. 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, including:
- 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.
As always, consult your tax advisor if you’re unsure whether you should change your current tax classification.
16. I’m already in business—can I still fill out Form 8832?
Yes. Form 8832 can be filled out at any point 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.
17. Is there a deadline to fill out Form 8832?
There’s no “deadline” to file Form 8832—it can be filed either right when you start your business, or at any point during your 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.
18. 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 seek late election relief.
To be eligible for late election relief, you need to fulfill all of the following circumstances:
- You failed to obtain your requested classification because you hadn’t filed Form 8832 on time.
- You haven’t yet filed your taxes because the deadline hasn’t yet passed, or you’ve filed your taxes on time.
- You can provide a reasonable cause explaining why you couldn’t file Form 8832 on time.
- Three years and 75 days haven’t passed from the requested effective date of the election.
If these apply to you, explain your circumstances and your reasonable cause in the field provided in Section II, Question 11.
19. How often can I make changes to my tax classification?
You can only change your tax status every five years, with a few exceptions. If you’ve changed your tax classification less than five years ago, but you’d like to fill out Form 8832, ask your accountant if your business suits one of those exceptions.
20. What about affiliates?
In Part I, Question 5, you’ll be asked whether your business is owned by one or more parent affiliated (or parent) companies that file a consolidated tax return. If so, you’ll need to provide the name of the parent company and its EIN number. This question is to ensure that all affiliated companies are taxed properly.
21. What if my business was formed outside the United States?
Certain entities that were formed in countries outside of the U.S. (or in certain U.S. territories) are eligible to fill out Form 8832. Consult the provided list on the form’s seventh page for a list of those countries.
What You Need to Know About Form 8832
Unless you specifically fill out the appropriate IRS tax form, the federal government will automatically tax you based on your business entity’s default tax classification. But by completing the relevant form, you can change your tax status—and, potentially, save thousands of dollars every year.
If you’re a single- or multi-member LLC and you’re considering changing your tax status, you can fill out Form 8832. But before launching straight into the form, we highly suggest consulting with your tax professional. Your accountant can guide you through the ins and outs of this form—and whether changing your tax status is the right move for your business in the first place.
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from Fundera Ledger https://www.fundera.com/blog/form-8832/
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