Form 8832 is the document LLCs submit to the IRS to change their default tax classification. Most commonly, it’s used if you want your LLC to be taxed as a C corporation.
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Why would I change my tax classification?
Depending on your financial situation, changing your tax classification could lower your total tax bill.
Many business owners don’t realize that the IRS assigns every new LLC a default tax classification. In the eyes of the IRS, an LLC is considered a disregarded entity, which means that while it’s recognized as a legal entity by your state, the IRS doesn’t recognize it as a taxable entity.
Huh? But I’m definitely still getting taxed!
Yep, you sure are. That’s because the IRS has assigned your LLC a default tax classification. If you’re a single-member LLC, you’ll automatically be taxed as a sole proprietor. If you’re a multiple-member LLC, you’ll automatically be taxed as a partnership. That is, of course, unless you request otherwise.
And that’s where Form 8832 comes in.
What types of businesses need Form 8832?
Partnerships, single-member LLCs, and multiple-member LLCs are eligible to file Form 8832. If your business is classified as one of these entities and you want to change your tax classification, then Form 8832 is for you.
Certain types of foreign entities, which are listed on Page 5 of Form 8832 under the section titled, “Who Must File,” are also eligible to file this form.
Additionally, Form 8832 can be used by LLCs currently taxed as corporations that want to revert back to a previous tax classification, like sole proprietors.
What types of businesses don’t need Form 8832?
- If you’re a sole proprietor, you’re not eligible to fill out Form 8832. To change how you’re taxed, you’ll need to form an LLC first.
- If you’re an LLC who wants to be taxed as an S-corp, then you don’t need Form 8832 at all. Instead, you’ll file the much simpler Form 2553 (we’ll chat more about that later). Lucky you!
- If you’re a corporation that wants to be taxed as an LLC, you also won’t file Form 8832. Instead, you’ll need to check with your secretary of state office about how to convert your corporation to another legal entity.
What’s the deadline for filing Form 8832?
You can fill out Form 8832 at any time. However, you want to be strategic about when you file the form and when your new tax classification kicks in.
Your new tax classification can’t start more than 75 days before the filing date on Form 8832.
That means if you file Form 8832 on April 1, your new tax election will take effect Jan. 15.
Your new tax classification also can’t start more than one year after you file Form 8832.
So if you’re an epic planner and want your new tax classification to start January 1, 2022, you’ll have to slow your roll and wait to file Form 8832 on January 1, 2021.
Form 8832 vs. Form 2553: What’s the difference?
The biggest difference between Form 8832 and Form 2553 is the tax classification that you’re requesting. If you’re an LLC or partnership, use Form 8832 if you want to be taxed as a C-corp, partnership, or a sole proprietor. Meanwhile, Form 2553 is for LLCs or corporations that want to be taxed as S-corps.
Keep this in mind: If you’re filing Form 2553, you don’t need to file Form 8832.
What else should I know about Form 8832?
You’ll need to attach a copy of Form 8832 to your federal income tax return the year you make the election.
How to file Form 8832
Enter your business information
The first section requests pretty basic information about your business:
- Name of eligible entity making election: Put your business name here, not your actual name. You’re filling out this form as a representative of your business.
- Employer identification number: This is your EIN. You must have one to complete the form. If you’re in the process of applying for an EIN, do not put “Applied for.” Instead, wait until you’ve received your EIN and then complete the form. You can’t use your Social Security number in place of an EIN on Form 8832.
- Address information: Put your business’s mailing address. This is where you’ll receive correspondence from the IRS regarding Form 8832.
- Check if:
- Address change: Check the box if you’ve changed your address since applying for an EIN or filing your most recent return.
- Late-classification relief sought under Revenue Procedure 2009-41: Check here if you’re requesting late election relief under Rev. Proc. 2009-41. (This means you qualify to file your classification late.) You’ll probably know if you need to check this because you’ve thoroughly researched late classification relief, or you’ve spoken to a lawyer.
- Relief for a late change of entity classification election sought under Revenue Procedure 2010-32: Check here if you’re requesting late election relief under Rev. Proc. 2010-32. Again, you’ll probably already know if you need to check this box.
Choose your type of election
1. Type of election
- Box a: Check here if this is the first time you’re choosing a new tax classification. Even if your entity has been around for years, if this is your first time changing your tax classification, check this box.
- Box b: Check this box if you’ve already changed your tax classification and now you want to change it again. You would also check this box if you want to revert your current tax classification back to the default tax classification.
Choose your previous elections (If you checked box a in the previous question, skip to question 3)
These questions help the IRS determine if you’re eligible to change your tax classification. Generally, if you’ve already adjusted your tax classification once, you’re not allowed to do it again for 60 months (which is five years).
2a. Last tax classification change
- Yes: Add a check if the last time you changed your tax classification was fewer than 60 months (five years) ago.
- No: Check the box if the last time you changed your tax classification was more than 60 months (five years) ago.
There are a few exceptions to the 60-month limitation rule. You can change your tax classification early if you chose your election when you formed your entity and it went into effect on your formation date, or if more than 50% of your business’s owners have changed since the last tax election.
2b. Newly formed entity
- Yes: Tick this box if the last time you selected a tax classification was when you formed your entity. Congrats! You qualify to change your tax classification now.
- No: Check here if the last time you chose a tax classification was not when you formed your entity. If you checked “no” here, the only way you can get around the 60-month rule is if more than 50% of the owners of your business have changed since your last election. If this is the case, you’ll need to contact the IRS about how to proceed with your tax classification change.
Enter your ownership information
3. More than one owner
- Yes: Check here if your business has more than one owner (like a partnership or multiple-member LLC). Then skip to line 5.
- No: Add a check if your business has only one owner (like a single-member LLC). Then go to line 4.
4. Owner information (only answer this question if your business has one owner)
- a. Enter the name of the owner (that’s usually you).
- b. Enter the Social Security number, tax identification number, or EIN of the owner listed on line a.
5. Affiliated corporations
- a. If your business is owned by a group of companies that are all under one parent company, then list the parent company’s name here.
- b. Enter the EIN of the parent company.
Add your election information
Here’s where you tell the IRS which tax classification you’re changing to.
6. Type of entity
- a. Check here if you’re a US business that wants to be taxed as a corporation.
- b. Check here if you’re a US business that wants to be taxed as a partnership.
- c. Check here if you’re a US business that wants to be taxed as a sole proprietor.
- d. Check here if you’re a foreign business that wants to be taxed as a corporation.
- e. Check here if you’re a foreign business that wants to be taxed as a partnership.
- f. Check here if you’re a foreign business that wants to be taxed as a sole proprietor.
7. Foreign jurisdiction
- If you’re a foreign business, enter the name of the country where your business was formed. If you’re a US-based business, then you can skip this line.
8. Election date
- Enter the date that you want your new tax classification to start. Remember, you can’t enter a date more than 75 days before the form’s filing date or 12 months after the form’s filing date. If you leave this line blank, the start date will be the date you file the form.
9. Contact information
- Enter the name, title, and phone number of the contact person. This is probably you.
Read and sign the consent statement
To file Form 8832, you must have an authorized signature from one or more of the following people:
- Each person who is an owner of the business at the time of filing, or
- An officer, owner, or member who is authorized to make a tax election. This authorization could be under the business’s organization documents (such as your bylaws) or local law.
Complete the late-election relief, if it applies
If you’re applying for your tax election more than 75 days after you want your election to begin (like our April 1 example earlier), then you can apply for late-election relief. If granted, the IRS will allow your tax election to start on the date indicated on Form 8832.
To be eligible for late election relief, all four of the following must apply to you:
- You filed Form 8832 and were denied because it was filed late.
- The federal tax filing deadline for the year that you need the tax classification hasn’t passed yet OR you have filed all your tax returns on time (or at least within six months of the due date).
- You have reasonable cause for not filing Form 8832 on time.
- Your requested election start date is no more than three years and 75 days from filing the late election relief.
If you’re eligible for late election relief, then you will:
- Explain why the classification was not filed on time. (This is your “reasonable cause.”)
- Have the same authorized person who signed the consent statement sign the late election relief.
And that’s it. You’ve filled out Form 8832, and you’re now on your way to the tax classification that makes the most sense for your business.