Form 8832, Entity Classification Election, is an IRS form that allows businesses to elect how they are classified for federal tax purposes, such as a corporation, partnership, or disregarded entity. This form provides flexibility in choosing the most beneficial tax treatment for the entity.
What is Form 8832 used for?
Form 8832, Entity Classification Election, is used by business entities to choose their tax classification with the Internal Revenue Service (IRS).
This form allows eligible businesses to elect how they will be taxed, which can significantly affect their tax obligations and overall tax strategy. Every business structure has a default tax status according to IRS rules. By filing Form 8832, businesses can change their default classification and choose to be classified (or re-classified) as a corporation, partnership, or disregarded entity (part of the business owner’s income tax return).
Who files Form 8832?
Only qualifying entities can use Form 8832. These include:
- Limited liability companies (LLCs)
- Partnerships
- Certain foreign entities
Reasons to file Form 8832
There are many reasons why a business might choose to file Form 8832, primarily revolving around optimizing its tax classification. Filing this form allows businesses to select a tax classification that can result in more favorable tax rates and reduce the likelihood of double taxation.
For example, an LLC may choose to be taxed as a corporation to benefit from certain tax advantages or to avoid self-employment tax on its income. This tax election can also simplify the federal tax return process by aligning the business's tax status with its financial structure.
Benefits of filing Form 8832
There are three main benefits business owners might seek by filing a Form 8832:
- Separate tax filings: With certain business classifications, they can report business income and expenses on a business tax return, rather than their personal tax return.
- Tax savings: Some classifications come with deductions and other ways to save more on taxes.
- Streamlined requirements: In some cases, changing a business classification makes finances or tax filings more straightforward for a business.
How to determine your eligibility and entity type
Here’s how different business entities can use Form 8832 for their tax elections.
Filing as a C-Corp with Form 8832
Businesses that choose to be taxed as a C corporation (C-Corp) can benefit from certain tax advantages, such as lower tax rates on retained earnings and deductions on business expenses. Multi-member LLCs, in particular, may elect to be taxed as a C-Corp to avoid pass-through taxation, which requires each member to report their share of profits and losses on their personal tax returns.
By electing C-Corp status, LLCs can manage their tax obligations more strategically and reinvest more profits back into the business.
Filing as an S-Corp with Form 8832
For business owners looking to avoid double taxation while still enjoying the benefits of a corporate structure, electing to be taxed as an S corporation (S-Corp) can be an attractive option.
While Form 8832 itself is not used to elect S-Corp status, an eligible business must first file Form 8832 to be classified as a corporation before filing Form 2553 to elect S-Corp status. This election allows business profits, losses, deductions, and credits to pass through to shareholders' personal tax returns, avoiding the corporate tax level and potentially reducing overall tax liability.
Filing as a sole proprietorship or partnership with Form 8832
Single-member LLCs can elect to be disregarded entities for tax purposes, meaning they are taxed as sole proprietorships. This simplifies the tax filing process, as the business income and expenses are reported directly on the owner's personal tax return.
Multi-member LLCs can choose to be taxed as partnerships, where each partner reports their share of the business income, deductions, and credits on their individual tax returns.
Electing these classifications can be beneficial for businesses looking to simplify their tax filings.
How to fill out Form 8832
When filling out Form 8832, make sure all information is accurate to avoid delays or complications. This section will guide you through the process step-by-step.
What information do you need to file Form 8832?
Before you begin filling out Form 8832, gather all necessary information, including:
- Business name
- Business phone number
- Business address
- Employer identification number (EIN)
- Name and EIN of parent corporation (if applicable)
- Owner’s name (if there’s only one owner)
- Owner’s Social Security number (SSN) or ID number (if there’s only one owner)
Filling out Part I: Election information
Part I of Form 8832 is where you provide essential details about your election. There are six questions to answer and some information to fill out if applicable to your business:
Line 1: Check the box to indicate whether you’re classifying a new entity or re-classifying an existing one.
Line 2: This line helps determine whether you have an eligible entity based on the 60-month limit (we’ll explain this in more detail later in this article). Check the correct boxes and follow the instructions on the form.
Line 3: Check the correct box to indicate whether your entity has a single owner or multiple.
Line 4: If your entity has a single owner, enter their name and ID number here.
Line 5: If your entity has a parent company, enter its EIN here.
Line 6: Indicate what kind of entity you want to become:
- Choose option 6a to classify an LLC as a C-Corp.
- Choose option 6b to switch a multi-member LLC from a C-Corp to a partnership.
- Choose option 6c to switch a single-member LLC from a C-Corp to a sole proprietorship (disregarded entity).
- Options 6d, 6e, and 6f are for foreign entities.
Line 7: If you have a foreign entity, declare which country it’s from here.
Line 8: State the effective date of your classification. If you don’t provide one, the IRS will use your filing date. Your effective date can be up to 75 days before or 12 months after you file Form 8832.
Lines 9-10: Fill in your contact information.
Filling out Part II: Late election relief
If you missed the filing deadline, provide a written explanation for the IRS in this section as to why the form is late.
How to submit Form 8832
Once you have a complete Form 8832, it's time to submit it to the IRS. Follow these steps to file the form:
- Print the form.
- Mail the form. Electronic submission isn’t an option for Form 8832. It can only be submitted by mail.
- File IRS Form 8832. The mailing address to file your form depends on where your state is located. See the chart below.
Business location
Where to mail Form 8832
Connecticut, Delaware, Washington D.C., 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, or Wisconsin
Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999
Any state not listed above
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201
Foreign country
Department of the Treasury
Internal Revenue Service
Ogden, UT 84201-0023
Frequently asked questions about Form 8832
How often do you have to file Form 8832?
Do you have to file Form 8832 every year? No. Form 8832 generally only needs to be filed when a business entity wants to change its tax classification. Once filed, the election remains in effect until the entity either becomes eligible for and chooses a different classification or meets the requirements to change its classification after the applicable timeframe has passed. If no changes are desired, there is no need to refile.
How much does it cost to file Form 8832?
There is no direct fee charged by the IRS for filing Form 8832. However, businesses may incur costs related to preparing and submitting the form, especially if they use professional services for assistance. Pricing for these services can vary depending on the complexity of the entity's situation and the rates charged by tax professionals.
What’s the difference between Form 8832 and Form 2553?
Form 8832, Entity Classification Election, allows a business to choose its tax classification, such as a corporation, partnership, or disregarded entity. Form 2553, Election by a Small Business Corporation, is used by eligible businesses to elect S corporation (S-Corp) status. A business might first file Form 8832 to elect corporate status before filing Form 2553 to become an S-Corp.
When is Form 8832 due?
Form 8832 can be filed at any time during the tax year and doesn’t have a specific filing deadline. However, it doesn’t take effect until the start of the business entity’s next fiscal year. It is important to consider the timing of the filing to align with the business’s tax planning and reporting requirements.
What is the 60-month limitation rule?
The 60-month limitation rule states that once an entity has made an election with Form 8832, it can’t make another change to its classification within 60 months of the effective date of the initial election. This rule is designed to prevent frequent changes in tax status. However, exceptions apply if the entity undergoes significant changes, such as a substantial change in ownership.
Who can help you file Form 8832?
Filing Form 8832 can be complex, and many businesses seek the assistance of tax professionals to make sure their tax form is accurate and complies with the law. Certified public accountants (CPAs), tax attorneys, and other professionals specializing in business tax forms can provide valuable guidance and support throughout the filing process.
Disclaimer: Rippling and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.