In the world of IRS paperwork, Form 8832 is small but mighty. This two-page form decides how your business will be taxed, and that choice can seriously impact your tax return, tax rates, and bottom line. You might file it when starting a new business, changing your company’s structure, or if you’re a foreign entity with U.S. filing requirements.
The right tax election can lead to significant savings. The wrong one can mean paying more than you should, and the IRS won’t let you know if a better option is available. Form 8832 may not be the flashiest piece of paper you’ll sign all year, but it’s one that deserves your full attention.
What Is Form 8832?
Officially called the Entity Classification Election, Form 8832 is how an eligible business tells the IRS, “Here’s how I want to be taxed.” Your accountant might call it the “check-the-box” form. This short form can have long-term consequences for your tax status whether you are a domestic or foreign entity.
Who Can File
- Limited liability companies (LLCs), both single-member and multi-member
- Partnerships
- Certain foreign businesses operating in a foreign country but with U.S. filing requirements
Why It Matters
Filing Form 8832 allows you to choose whether your business is taxed as a C corporation, partnership, or (in the case of single-member LLCs) as a sole proprietorship. Each classification comes with its own business tax rates, filing requirements, and potential savings.
- C corporation: Profits are taxed at the corporate level, and dividends are taxed again on your personal return (known as double taxation). This can be appealing for businesses that reinvest profits or want access to certain corporate tax breaks.
- Partnership: Income passes through to the owners, avoiding corporate tax but leaving the partners responsible for self-employment tax on their share.
- Disregarded entity: For a single-member LLC, income is reported directly on your personal return, simplifying filing but not reducing self-employment tax.
By default, a single-member LLC is taxed as a disregarded entity, and a multi-member LLC defaults to a partnership. Filing Form 8832 overrides these defaults so you can choose the structure that works best for your business.
Form 8832 vs. Form 2553
It’s easy to confuse these two forms, but they serve different purposes. Use Form 8832 to choose your general tax classification, but use Form 2553 if you specifically want to elect S corporation status. In some cases, you will file both: Form 8832 first to set the base classification, then Form 2553 to make the S-corp election. The order is crucial.
Pro Tip: The IRS won’t automatically give you a different tax status. If you qualify for a more favorable classification, you have to ask for it by filing the right tax form at the right time.
How to File Form 8832: A Step-by-Step Guide
Filing Form 8832 isn’t complicated, but it requires accuracy. Here’s how to get it right the first time.
1. Gather Your Business Information Before you start, make sure you have:
- Your business’s name and mailing address
- Your Employer Identification Number (EIN)
- The exact date you want your new classification to take effect
- Your current and requested classification (e.g., multi-member LLC changing to a C corporation)
2. Complete Part I—Election Information
- Check the box for your eligibility as a domestic or foreign entity.
- Select the new tax classification you want (C corporation, partnership, or disregarded entity).
- Indicate the effective date for your election.
3. Complete Part II—Late Election Relief (if applicable) Only fill this out if you’re filing after the deadline. You’ll need to show a reasonable cause for missing the original due date, such as relying on incorrect professional advice.
4. Double-Check for Accuracy Confirm your EIN and effective date are correct. Small typos can lead to big IRS delays.
5. Submit the Form Mail or fax the completed form to the IRS address listed in the instructions. Be sure to keep a copy or fax confirmation page for your records.
Pro Tip: If you’re unsure about the best classification for your business, consult a CPA before you file. The IRS will honor your choice, even if it’s not the most tax-efficient one for you.
What if You Miss the Deadline?
Missing the Form 8832 filing deadline doesn’t mean you’re out of luck. The IRS offers late election relief if you can show a reasonable cause for the delay. You’ll need to follow the IRS’s process carefully and include a written explanation when you submit the late form.
If you don’t file at all, the IRS will assign a default classification based on your entity type and ownership. This default can result in a higher tax bill and fewer planning opportunities than if you had chosen a different structure.
Pro Tip: The cost of fixing an error can be far greater than the cost of filing correctly the first time, especially if the wrong classification results in unexpected back taxes or penalties.
How Often Can You Change Your Tax Classification?
The IRS isn’t a fan of frequent changes. Once you’ve made a tax election with Form 8832, you generally have to stick with it for a while. After a classification change, you must typically wait 60 months (five years) before filing another Form 8832 for the same entity. The clock starts from the effective date, not the filing date.
The only exception is if your ownership structure changes enough to create a new eligible entity under IRS rules.
Treat a classification change like a long-term business decision. The IRS will let you make it, but they won’t let you treat it like a seasonal refresh.