Form 8832: Entity Classification Election
Form 8832, titled Entity Classification Election, is a document filed with the Internal Revenue Service (IRS) by an eligible business entity to designate its tax classification for federal tax purposes. In simpler terms, it allows you to tell the IRS how you want your business to be taxed. There are three main options:
A. Corporation: This is a separate legal entity from its owners. Profits are taxed at the corporate tax rate, and owners pay taxes on dividends they receive from the corporation.
B. Partnership: This is a pass-through entity, meaning the business itself doesn't pay income tax. Profits and losses pass through to the individual owners who report them on their personal tax returns.
C. Disregarded Entity: This is a business treated as an extension of its sole owner. The owner reports all business income and expenses on their personal tax return.
Who Should Use Form 8832?
This form is typically used by:
Limited Liability Companies (LLCs): By default, LLCs are classified as disregarded entities for single-member owners and partnerships for multiple-member owners. However, LLCs can elect to be taxed as a C corporation (C-corp) or an S corporation using Form 8832.
Foreign Eligible Entities: Certain foreign business entities may need to file Form 8832 to establish their tax classification.
Things to Consider Before Filing Form 8832
Tax Implications: Each tax classification has different tax consequences. Carefully research the tax implications of each option before making a decision. Consulting with a tax advisor is recommended.
60-Month Limitation: There's a 60-month (five-year) limitation rule. Generally, you cannot change your elected classification again within 60 months of the previous election, unless you receive IRS approval.
Do I Need to File Form 8832?
You don't need to file Form 8832 if you're happy with the default tax classification for your business entity. However, if you want to choose a different classification, such as a C-corp for your LLC, then Form 8832 is required.
When Should I File Form 8832?
Form 8832 must be filed between one year before and 75 days after the desired effective date of the election. For most LLCs, this would be during the first tax year of operation.
Where Do I File Form 8832?
You can file Form 8832 electronically through the IRS website or by mail to the appropriate IRS service center for your state. The specific address is listed in the Form 8832 instructions.
What if I Already Filed Form 8832 and Want to Change My Classification?
Generally, you cannot change your elected classification within 60 months of the previous election without IRS approval. However, there are exceptions for certain situations. Consult with a tax advisor for guidance.
Do I Need an Employer Identification Number (EIN) to File Form 8832?
Yes, you will need an EIN to file Form 8832. If you don't already have one, you can apply for an EIN online or by mail using Form SS-4, Application for Employer Identification Number.