About Form 8832, Entity Classification Election Internal Revenue Service
For purposes of this guidance, the “effective date” is the date the election is intended to be effective and cannot be more than 3 years and 75 days from the date relief is requested. If the IRS identifies mistakes, they may reject the form, delaying your entity election. For instance, if an owner electing to be disregarded submits incomplete information, the IRS may send back the form or ask for clarifications, postponing acceptance. You can also use Form 8832 to change your business’s tax classification. After a valid election, you usually can’t change again for 60 months — unless more than 50% ownership changes.
Key Tips and Considerations
However, the IRS could impose penalties on anyone who was required to attach the form. Tax-exempt organizations, real estate investment trusts (REITs), and S corporations can’t change their classification using Form 8832. That’s because they’re treated as if they made an election under check-the-box regulations to be classified as a corporation. This includes businesses that are automatically classified as corporations, such as banks, insurance companies, and joint-stock companies. Once an election is made, the business generally has to wait at least five years before switching its classification again. However, if more than 50% of the business ownership changes, the IRS might allow another reclassification sooner.
How much does it cost to file Form 8832?
As always, consult a qualified tax advisor if you’re unsure whether to change your tax classification. That person 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. The IRS identifies certain foreign entities as “per se corporations,” which are automatically classified as corporations and cannot file Form 8832. However, foreign entities not on this list may elect their classification, influencing their U.S. tax obligations. These decisions should align with international tax treaties and U.S. tax laws. Form 2553 alone is sufficient to change the LLC’s tax classification to an S-corporation.
One thing I’d suggest adding to your reasonable cause statement is mentioning how you immediately stopped what you were doing to research and address this issue once you learned about it. The IRS seems to really value seeing that immediate, good-faith effort to comply. The professional engagement piece is especially smart – it shows you’re being proactive about compliance going forward rather than just reactive to this one issue.Good luck with your filing! Based on all the success stories in this thread, it sounds like you have a really good chance of approval. You’ll need to provide a detailed description of the new tax classification and select an effective date within 75 days before or after filing. Make sure to indicate clearly if your LLC is electing to be classified as a corporation, partnership, or disregarded as a separate entity for IRS purposes.
- The IRS has a resource page explaining the rules for late election relief.
- You also have to attach a copy of Form 8832 to your business’s federal tax or information return for the tax year you made the classification election.
- For existing LLCs, keep in mind that once you make this election, the IRS will use it for at least 60 months before allowing you to change the tax status again without special approval.
- Each owner should show their pro-rata share of partnership income, credits and deductions on Schedule K-1 (1065), Partner’s Share of Income, Deductions, Credits, etc PDF.
If you’ve changed your tax classification less than five years ago, but you’d like to file Form 8832, ask your accountant if your business suits one of those exceptions. Part 1 of IRS Form 8832 asks a series of questions regarding your tax status election. Meredith Wood is a member of the small-business team at NerdWallet.Prior to this, she was a VP at Fundera where she founded the FunderaLedger. She has specialized in financial advice for small-business ownersfor over a decade.
What Is Form 8832 Late Election Relief?
Without this form, a domestic eligible entity with a single owner is typically classified as a disregarded entity, meaning it’s taxed like a sole proprietorship on the owner’s personal tax return. A single-member LLC (SMLLC) is, by default, treated as a disregarded entity for tax purposes—meaning its income and expenses are reported directly on the owner’s personal tax return. However, a single-member LLC has the option, via Form 8832, to elect taxation as a corporation.
- Form 2553 is for traditional corporations to elect S corporation status, specifically.
- Thus, an LLC that has been treated as a partnership for several years may be able to prospectively change its classification to be treated as a corporation by filing Form 8832.
- Part II is very simple to fill out, as this section is only required for those who have missed the filing deadline.
- Verify your contact details, including email and phone number, to stay updated on submission status.
- A business that wants to be treated as an S corporation doesn’t need to file Form 8832.
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An accountant can help you choose the ideal effective date to put on your entity classification election form. There’s often some strategy involved, and making the right call could help you optimize your business taxes. I’m in a similar boat – just discovered this requirement myself after operating for over a year.
The statement really seemed to hit all the right points about reasonable cause that the IRS was looking for. With TurboTax Live Business, get unlimited expert help while you do your taxes, or let a tax expert file completely for you, start to finish. Our small business tax experts are always up to date with the latest tax laws and will ensure you get every credit and deduction possible, so you can put more money back into your business. Small business owners get access to unlimited, year-round advice and answers at no extra cost and a 100% Accurate, Expert Approved guarantee.
Select the proper date for your tax classification to begin so 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. There are six questions to respond to in Part I. These questions determine if an entity is eligible to file Form 8832 and collect information about its existing and desired classification. If a response to these questions determines that a business is not eligible to make the election, you will be informed immediately. Once the IRS accepts your entity election, your new classification will remain indefinitely. There’s no need to file Form 8832 a second time unless you want to change your entity classification again.
Filing deadlines can significantly impact your entity’s tax filings for how to file irs form 8832 the current and future years, and missing the window may limit your options without additional steps. If you do not meet the required deadline, the IRS offers late election relief under certain circumstances, but navigating this process requires careful attention to eligibility rules and supporting documentation. When filing taxes with the federal government for the first time, you must select your classification.
Form 8832 – Entity Classification Election – Downloadable PDF
So, for example, if you start a new business, the election can still apply on day one if you file Form 8832 after the company is up and running. But a retroactive effective date can’t be more than 75 days before the date you file Form 8832. If you select an earlier date, the election will default to 75 days before the date it’s filed. Instead, their income, losses, deductions, and credits are passed directly to the partners, who then report their proportionate share of these items on their personal income tax return. However, partnerships still have to file an information return with the IRS each year (Form 1065). The form essentially allows you to pick how your business structure is taxed for federal tax purposes.
Thus, an LLC that has been treated as a partnership for several years may be able to prospectively change its classification to be treated as a corporation by filing Form 8832. At the top of Form 8832, you will enter the name, EIN, and address of your business entity. It is very important that this information exactly matches the information in the IRS files.