Form 8832 | Entity Classification Election
The Form 8832 is to elect to have a business taxed as an S-Corporation (often times referred to as an “S-Corp”) as opposed to an LLC or C-Corporation. This will not change the organization at a state level. This form can be used by Corporations and LLC’s and will elect with the IRS to have the business entity recognized as an S Corp for tax benefit purposes.
In laymen’s terms, businesses often form an LLC in the beginning in order to have the option of paying their self employment taxes only at the end of the year. This method usually makes an LLC responsible for about 15% of the business profits. If you file form 8832 you can be taxed as an S Corp. Filing as an S Corp (form 8832) will require that you pay and file your payroll taxes quarterly however there may be a significant amount of money saved by avoiding excessive payroll taxes imposed upon an owner who is an employee. Your annual profits will decide your tax savings. Form 8832 could save thousands of dollars each year for a business. However, each business’ tax situation is different so careful examination of your particular tax situation is crucial with making this decision.
Although this form is easy to fill out, there are plenty of qualifying factors and rules that must be observed and followed. If you are remotely unsure about it’s benefits to your business and how it will affect your tax status, you may decide it would be best to consider consulting with a tax attorney or a reputable CPA to assist with your decision as to whether or not filing this form would be beneficial for your business.
How to File
Step 1 – Study Instructions Prior to Completion of Form – It will be very important, should you decide to file form 8832, that you fully understand the ramifications this form may have on your tax responsibilities. Carefully study these instructions provided by the IRS and use them as you complete your form.
Step 2 – Complete the Form – Once you’ve completed the form attach it to your tax return and send it to the IRS.
Always review your IRS forms for accuracy and supporting documentation before sending information.