As your business grows, so does your tax bill. While your small business may require minimal tax planning in its early stages, every company can benefit from periodic tax strategy assessments.
Filing an IRS Form 8832, Entity Classification Election, can be a simple strategy to lower your companyÕs tax burden. Form 8832 is a tax election for newly formed entities and existing businesses.
This article contains step-by-step instructions for filling out IRS Form 8832. YouÕll learn the benefits and timing considerations to discuss in your next tax advisory planning session. Brendon Pack
What Is IRS Form 8832?
IRS Form 8832 allows a business to elect a federal tax classification other than its default treatment. In other words, a company can choose a different entity type for its federal tax return.
For example, a single-member LLC defaults to a sole proprietorship for federal tax purposes. However, the LLC can file Form 8832 to elect corporate tax treatment. After filing Form 8832, the LLC will file corporation tax returns and pay corporate income tax.
Form 8832 elections can benefit growing companies. Smaller businesses often benefit from pass-through entity taxation because the business owners pay tax at their personal income tax rates. However, companies with high taxable income could pay lower taxes with a corporate tax election. Individual income tax rates range up to 37%, but C corps pay 21% federal income tax.
Your tax advisor can help you determine the most tax-efficient structure for your business.
When youÕre ready to file an election, let professional CPAs handle the paperwork for your business. 1-800Accountant offers budget-friendly entity formation services so you can confidently choose the best business entity type. Brendon Pack
Who Should File Form 8832?
An eligible company can use Form 8832 to file an entity classification election. An eligible business includes one of the following:
Limited liability companies (LLCs)
Partnerships
Sole Proprietorship or Single-Member LLC
If a business has one owner, the company defaults to a disregarded entity for federal income tax purposes. An individual business owner is a sole proprietor. Disregarded entities do not file separate entity income tax returns. Instead, the owner must report the entityÕs business income on its federal tax return.
You can register a single-member limited liability company with your Secretary of State.
A sole proprietorship or single-member LLC can file IRS Form 8832 to elect corporate tax treatment. The entity should elect classification as Òan association taxable as a corporation.Ó After filing Form 8832, the entity should file a C corp tax return to report taxable income and calculate its income tax liability.
Business owners must report corporate dividend income on their personal tax returns. Corporation owners do not use Form 1040 Schedule C to report business income.
Let tax professionals help you comply with your new tax filing requirements. 1-800Accountant supports your tax form preparation and filing.
Partnership or Multi-Member LLC
A business with more than one owner defaults to pass-through entity tax treatment.
A partnership or multi-member LLC must file partnership returns to report business income and ownership information. The company must issue a Schedule K-1 to each owner, reporting income and expense distributions.
The pass-through entity can file IRS Form 8832 to elect corporate tax treatment. The business should elect classification as Òa partnership or an association taxable as a corporation.Ó
After filing Form 8832, the entity must file a C corp tax return to report taxable income and calculate its income tax liability. Business owners report corporate dividend income on their personal tax returns. Owners will no longer receive K-1s.
We recommend partnering with tax professionals for help with your new tax forms and due dates.
C Corporation
Corporations cannot use Form 8832 to elect a different tax classification.
However, an LLC or partnership that previously elected corporate tax treatment can file a new Form 8832 to change its election:
A company with one owner can elect sole proprietorship tax treatment.
An entity with multiple owners can elect partnership tax treatment.
Always consult your tax advisors about tax planning strategies for your business.
When Should You File Form 8832?
Your company can file IRS Form 8832 at its formation or at a later time, depending on the most beneficial date for your business.
Form 8832 allows taxpayers to choose an effective date of the election. However, note the following due date requirements for your desired election date. To start your election on a specific date, you must file Form 8832 within the following periods:
No later than 75 days after your desired effective date
Less than 12 months before your desired effective date
For example, if you want your corporate tax election effective as of 1/1/2025, you must file Form 8832 after 1/1/2024 and before 3/17/2025.
Additionally, your business cannot file two 8832 elections within five years. (The five-year rule does not apply to Form 8832 filed by a newly-formed business.)
1-800Accountant can help your business file Form 8832 on time Ð and weÕll monitor your tax due dates year-round.
Instructions for Filling out IRS Form 8832
Information Required for Form 8832
Have the following business information handy before filling out your Form 8832:
Business name
Employer identification number (EIN)
Address
Businesses with a single owner or corporate parent must also report the ownerÕs name and taxpayer identification number (TIN).
How to Fill out Form 8832
Part I: Election Information
IRS Form 8832, Part I includes questions about your entity election.
IRS Form 8832, Part I, Page 1
Line 1, type of election: Indicate whether your business is changing its tax classification or filing the election as a newly formed entity.
Lines 2a and 2b, previous elections: Do not complete these questions if your business hasnÕt filed an entity classification election. Indicate whether the previous election was within the last five years (if applicable).
Line 3, number of owners: Indicate whether your business has one or multiple owners. Your response will determine which election(s) you can make with Form 8832.
Line 4, sole owner information: If your business has only one owner, list the ownerÕs name and identifying number.
Line 5, corporate owner information: If a corporation owns your business, list the parent corporationÕs name and EIN.
IRS Form 8832, Part I, Page 2
Line 6, type of entity: Indicate your businessÕs current entity classification and the type of election you want to make with this Form 8832.
Line 7, foreign entity information: If applicable, list the country where the business was organized.
Line 8, effective date: List the effective date of the entity election.
Line 9, contact information: Provide the contact personÕs name, title, and phone number.
Each owner or member must sign Form 8832. If the business authorized an officer to file the election on its behalf, the authorized officer(s) can sign.
Part II: Late Election Relief
Part II applies to taxpayers who failed to file Form 8832 on time.
Your business can request late election relief if you missed the Form 8832 filing deadline for your desired effective date. The IRS requires taxpayers to meet the reasonable cause requirements explained in the Form 8832 instructions.
If you missed the Form 8832 due date, include an explanation in Part II. Each owner or member must sign the late election relief section.
You can leave Part II blank if you filed your entity election within the required timeframe.
How to File IRS Form 8832
The IRS requires taxpayers to file Form 8832 via paper mail.
Use the Form 8832 instructions or refer to the following list to determine where to file your election. Use the mailing address applicable to your business location.
Mailing Address Business Location
Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999 Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, Wisconsin
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201 Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Utah, Washington, Wyoming, foreign countries or U.S. possessions
Form 8832 Frequently Asked Questions
What Is an Entity Classification Election?
An entity classification election allows a business to change its tax entity type for federal income tax purposes. The election affects the companyÕs federal income tax return filing.
What Is the Default Classification for My Small Business?
If your business has a single owner, the company defaults to a disregarded entity for federal income tax purposes. A business with more than one owner defaults to partnership tax treatment.
How Do I Get an EIN?
Your business can request an EIN by filing IRS Form SS-4 Application for Employer Identification Number (EIN) or using 1-800AccountantÕs budget-friendly EIN filing service.
What Form Should I File to Become an S Corporation?
If your business meets the S corp requirements, file IRS Form 2553, Election by a Small Business Corporation, to elect S corporation tax status.
Partner with 1-800Accountant for Confidence in Your Taxes
Always work with professional CPAs to determine your most tax-efficient business structure. 1-800Accountant can help you understand the effects of an entity classification election. WeÕll also determine the best time to file.
Tax advisory professionals help you with filing requirements and deadlines so you can focus on growing your business.
