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As much as starting and running a business involves grit and good ideas, it also involves the delightful tedium of paperwork—and knowing which forms the government needs from you based on the type of business you own.
That’s where IRS Form 8832 comes in. Businesses use this form to elect how they will be classified for federal tax purposes. If that sounds like gibberish to you, don’t worry: Take a look through our FAQ to decipher all you need to know about this business-specific tax form.
The bottom line: It can affect your bottom line. Nobody wants to pay too much in taxes. According to UpCouncil, if you don’t fill out Form 8832, your business will be given a default tax classification. For example, a multi-member LLC gets taxed as a partnership unless you change the tax status. You could pay thousands of dollars less, just by filling out this form with your correct tax classification.
Partnerships and limited liability companies (LLCs) should file IRS Form 8832. Businesses file this form if they want to be taxed as different kinds of companies, like a corporation. Note: If you want to be taxed as a corporation, you need to file articles of incorporation with your secretary of state first, and then file Form 8832.
If you don’t have an EIN yet, you can easily apply for one for free at IRS.gov.
No. You generally do not need to change your EIN if you switch your tax treatment.
The signature is required in Part 1, Question 9. For this question, provide the name, title, and phone number of the person that the IRS should contact should there be any questions about your form. Form 8832 should be signed by a business owner, manager, or officer of the business. If the election is going to be active before the date you filed the form, it needs to also be signed by anyone who was an owner during the active period but is no longer an owner.
This would be your tax advisor.
No. You should also attach a copy of the form to your federal income tax return for that year.
The IRS estimates it takes just 17 minutes!
Are there any businesses that should not use Form 8832?
Yes. UpCouncil provides this list of businesses that Form 8832 may not be for:
No. If you want to be taxed as a corporation, you first need to officially form a corporation by filing articles of incorporation with the secretary of state in your business’s home state.
Similarly, no. Most states require official conversion through the secretary of state in order to dissolve corporate tax status. Contact your state’s secretary of state office to learn more.
Yes, Form 8832 is the correct form to fill out in this case.
No. All partners within a corporation must be taxed consistently—the same as the business.
FitSmallBusiness has a great guide for selecting the best business structure for your business. However, consult with your tax advisor before undergoing any elections.
You need to fill out this form either:
There are a few reasons you might want to change your current tax classification.
Consult your tax advisor if you’re unsure whether you should change your current tax classification.
Yes. Form 8832 can be filled out anytime during the course of a business’s lifetime. Partnerships and LLCs especially might benefit from filing Form 8832 if they haven’t already, or if they previously filed as a corporation.
The “deadline” to file Form 8832 is asynchronous. It can be filed anytime you start a business or during a business’s lifetime. However, the filing date is important! The tax status for the business is effective either:
You want to select the proper date for your tax classification to begin so that 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.
If you don’t file within the correct time frame (75 days before the form is filed, or one year after) you can always seek late election relief. According to FitSmallBusiness, You might be eligible for late election relief if all the following four factors apply to you:
If these apply to you, explain the reasonable cause for delay in the blank space on the form. If not, consult your tax advisor.
You can only change your tax status every five years. However, FitSmallBusiness says there are exceptions:
If the owner or owners of your business are a group of affiliated companies that file a consolidated return, you need to specify the parent company and its EIN number in Question 5. This question is to ensure that each company in the group receives the correct tax treatment.
If your business was formed somewhere other than the United States, then provide the country where the business was created. Some US territories are considered foreign entities for tax purposes. See page 7 of Form 8832 for a list of countries if you’re unsure. BrightTax has a great guide for Form 8832 for foreign entities.