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IRS Form 8832, Entity Classification Election, is used to tell the IRS how your business should be classified for tax purposes.
Submitting Form 8832 enables a limited liability company (LLC) to choose whether it is taxed as a sole proprietorship, a partnership, or a C corporation. Most LLCs submit Form 8832 to elect to be taxed as a C corporation, which can potentially save business owners a significant amount of money in taxes.
Who Should File Form 8832?
There are several types of businesses that are eligible to file Form 8832 to elect their tax classification.
- Domestic partnerships
- Domestic LLCs
- Foreign partnerships
- Foreign LLCs
Foreign corporations in certain jurisdictions may also be eligible to file Form 8832, but this is uncommon.
Domestic LLCs and partnerships must be incorporated in their home state before filing Form 8832. Incorporation is typically accomplished by filing articles of incorporation with a state’s secretary of state.
You do not have to file Form 8832. Unless you elect for different tax status, the IRS will tax single-member LLCs as sole proprietorships and multi-member LLCs as partnerships by default. Many business owners choose to file Form 8832 to change their tax classification to a C corporation to reduce their individual tax burden.
Note that you cannot use Form 8832 to elect to be taxed as an S-corporation. For that election, you must use IRS Form 2553.
When to File Form 8832
Since Form 8832 is not mandatory, there is no deadline to file it. Business owners can file this form if and when they want to change their business’s tax classification. It does not matter if the business is brand new or many years old.
You do have to choose a date for the change in tax classification to take effect. The effective date can be up to 75 days before Form 8832 is filed or up to one year after.
Another thing to bear in mind is that you can typically only change your tax classification once every five years. Changing your tax classification more than once within a five-year period requires approval from the IRS.
How to File Form 8832
Form 8832 is relatively simple to complete. You can begin by entering your business’s name, address, and employer identification number (EIN). Then select whether this is a first-time classification for a new business or a re-classification of an existing business. Select the desired tax classification and have all of the business owners sign the form.
Form 8832 must be mailed to the IRS and cannot be filed online.
Conclusion
IRS Form 8832, Entity Classification Election, is used by LLCs and partnerships that want to change their tax classification to a sole proprietorship, partnership, or C corporation. It can be filed at any time during the life of a business, although businesses can only change classifications once every five years.
