If you own a limited liability company or LLC firm then you might have an idea that at the time of formation a default tax status is given. Although you have an option of choosing a different one as well. If there is only one owner then it is considered as a sole proprietorship and if there are multiple members then the firm is considered as a partnership. If you do not want to continue with the default tax status of your entity then you can change this. Doing this will also help you to maximize your tax savings. Now you must be wondering how to do this. This can be done with the help of IRS Form 8832.
What is IRS Form 8832?
If you want to change the tax status of your LLC firm then it is not something you cannot do. This is doable and all you have to do is, fill out the Form IRS 8832. You have different options. You can have your firm taxed as a sole proprietorship, partnership, c corporation or s corporation. And the reason why most of the people go with this option, they save a huge amount in taxes. And if you are running a business, you are not the only person who is finding ways to reduce the tax liabilities.
By now you must have got a clear understanding what this tax form is all about. This IRS form helps you to change the tax classification of your firm. This is why it is also known as Tax Form 8832, Entity Classification Election. But you should always check whether you are eligible to fill out this entity classification election form or not.
For your convenience, here we are listing out all the eligible business for this form:
- Single-member LLCs
- Multi-member LLCs
- Certain types of foreign entities
These entities can choose their tax status as a C corporation, partnership, or sole proprietorship.
If your LLC firm currently has the tax status as a corporation then you can also fill out the Form 8832 to revert back to a previous tax classification. If you are eligible and still do not fill out this form then your firm will have to pay the taxes according to the default tax status. Also one important thing is, as a business you can change your tax status only once in every five years.
Now you must be thinking what kind of entities are not eligible to fill out this form. If the status of your firm is as a sole proprietorship then you are not eligible.
In case you are completely fine with your present tax status, you will not have to fill out this tax form. In any case, numerous LLCs can lessen their taxation rate by changing the default tax status they were relegated when they were formed. On the off chance that you and your tax accountant establish that it is monetarily beneficial to change your default tax status, filling out the IRS 8832 form gives you the alternative of being burdened as a sole owner, an organization, or a C company.
You May Also Know About: IRS Form 8606?
How to File?
Before starting the process, get all the required information in place. To fill out this form, you will need this information:
- Business name, address, and phone number
- Employer Identification Number (EIN)
- Owner’s name and Social Security number (If there is only one owner)
This tax form contains two parts: Election Information (Part I) and Late Election Relief (Part II). In the first part of this form you will have to enter information related to the tax status election. And in the second part of the form, is only for businesses seeking late election relief.
An entity will be eligible for late election relief in specific cases. All of these conditions must apply:
- You have already submitted the form 8832 to the IRS but they denied it because you did not file the form on the appropriate time.
- If your tax deadline of the annual tax filing for the ongoing financial year has not passed, or you are currently up to date on all federal tax filings.
- If there is a reasonable cause why there was a delay in the classification election.
- It has been less than three years and 75 days since the requested effective date of the election.
If all these conditions apply on your entity you will have to explain the delay on line 11 of your form. And on the second part of the form an authorized representative of the business will have to sign. And every affected person will also have to sign.
Where to Send and What is the Deadline?
After filling out this form, you will have to send it to the appropriate IRS office. And the place where you send it to depends on the state you are running your business in. There is no deadline for filling out this tax form. You can file when you start your business or at any point during your business’s lifetime.
However your new tax status cannot take effect more than 75 days prior to the date on which you filed the election or later than 12 months after filing, according to the IRS.
You May Also Know About: IRS Form 8606?
At this point you must have got an idea what is the process to fill out the IRS Form 8832 and also how difficult it is. So it is important for you to understand when you have to fill out this tax form.
If you have decided to manage everything on your own then it is more important. In that case, keeping up with all the deadlines can become a little but difficult for you. This is why most of the people are thinking about hiring a tax professional these days. Having someone to take care of everything related to your taxation is really a great thing. Now you must be thinking how to start. You can contact us on Accounts Confidant or give us a call on +1-866-301-2307 If you have any questions related to this tax form.