The domains of IRS forms must be comprehended by entrepreneurs and those who pay taxes to conform to tax statutes and guidelines.
A crucial form among them is the widely known Entity Classification Election form, officially known as IRS Form 8832. This form heavily influences the classification of certain commercial establishments’ tax treatment, rendering it an influential instrument.
What is IRS Form 8832?
Form 8832, also known as Entity Classification Election, is a document that entrepreneurs submit to the Internal Revenue Service to inform it about the business’ classification for federal tax purposes.
If businesses do not complete Form 8832, they will get a default classification of tax that might change their tax liability.
How to determine your eligibility and entity type
Form 8832 is applicable to various businesses, such as
- C Corporation
- Disregarded Entities
It is important to exercise caution when employing Form 8832 after it has been approved by the Internal Revenue Service (IRS), as this may result in taxes being imposed based on previous distributions, potentially leading to unexpected financial burdens.
Nevertheless, if utilized correctly, this form has the potential to save entrepreneurs a substantial amount of money each year.
When to file Form 8832
Form 8832 must be filed within seventy-five (75) days of establishing your business or agency. If you leave out this timeframe, the IRS allows it to be filed in the first 75 days of every economic 12 months.
The form consists of two sections and can be completed efficiently without requiring excessive time.
According to the instructions provided by the IRS, businesses should allocate ample time for general record-keeping, familiarizing themselves with relevant laws or forms, and preparing and submitting the form to the IRS.
How to complete Form 8832
At the outset of Form 8832, essential information about the business must be entered. This includes details about the entity making the election, such as its Employer Identification Number (EIN) and address.
The IRS emphasizes that EINs remain unchanged even if there is a modification in entity type. However, those without an EIN must apply for one using Form SS-4 (Application for EIN) before submitting Form 8832.
- Line 1 determines the specific type of election being made. The IRS advises against filing Form 8832 if default rules adequately classify the entity.
- Lines 2a and 2b ascertain whether the entity is eligible for the election based on its filing history. If an entity filed an election within the past 60 months that was not its initial filing for Form 8832, it is deemed ineligible.
- Line 3 determines whether the business has singular or multiple owners. Answering affirmatively indicates a single-ownership structure, while a negative response suggests multiple owners.
- If Line 3 is answered negatively, Line 4 must be completed, including the name and identifying number of the owner.
- Conversely, if Line 3 is answered affirmatively, Line 5 requires the name of the parent company and its EIN.
- Line 6 requires a declaration of the type of entity and the desired classification.
- Line 7 exclusively pertains to entities organized in foreign jurisdictions, requiring them to specify their country of origin.
- The effective date of the election is declared in Line 8.
- Lines 9 and 10 are designated for providing contact information to ensure that the IRS can request additional clarification if necessary.
Part II is a straightforward section that only needs to be completed by those who have missed the filing deadline. This portion provides a few lines to explain why the classification election was not filed on time.
Additionally, signatures from owners, officers, managers, or members of the electing entity are required to validate this section.
FAQs about Form 8832
What happens if I do not have an Employer Identification Number?
Prior to having an EIN, you may submit a free application for an employer identification number through the IRS website. For instance, you must get an EIN before filing IRS Form 8832; however, other benefits come with it.
Should I change my Employer Identification Number when changing my tax classification?
No. Generally, you won’t need to change your EIN in case of a switch in your tax treatment.
Who can sign Form 8832 for my entity?
Answer: There is a place for the signature on line 9 in Part 1. This is where you enter the name, title, and phone number of your contact person at the IRS who would want additional information about your form.
The individual signing this form should be a business owner, manager, or officer of the business.
Furthermore, any person who was an owner at any time during the active period but is not currently will also need to sign it if the election will be effective before that date.
Is this my last interaction with Form 8832?
No. You should also attach a copy of the form to your federal income tax return for that year.
How long will it take me to complete this thing?
According to our guiding notes for filling out the form, it only takes approximately seventeen minutes, and as seen from these details, there aren’t many things required on this form.