IRS form 8832 Single Member LLC: Everything You Need to Know
IRS Form 8832 single member LLC is used in order for a limited liability company to be taxed as a C corporation. 3 min read
2. Recordkeeping Tips for Single Member LLCs
3. How to Fill Out Form 8832
IRS Form 8832 single member LLC is used in order for a limited liability company to be taxed as a C corporation. You also need to use this form if your LLC is being taxed as a C corporation and you want to go back to being taxed as a partnership or sole proprietorship.
Filling out this form requires completion of two pages with 11 questions. It may be used by “eligible entities,” which includes LLCs. Another word the IRS uses is “association,” which refers to an eligible entity that may choose to be taxed as a corporation. All members, or one member on behalf of all members must sign the consent statement included on the form. If it's only signed by one member, you should make sure a record is on file indicating all members' approval of the one who signs. The names and identifying numbers of owners must be provided; this includes the Social Security Number for an LLC owned by one member.
The form's first section is used to determine your business's eligibility to change its tax status. On the second section, you select your current entity and the type you choose to use in the future. The third part of the form requires representative members to sign a consent statement.
How LLCs Are Taxed
The IRS does not recognize an LLC as a tax entity on its own. Therefore, income taxes are paid based on the company's membership structure. Single-member LLCs are “disregarded entities” and for tax purposes they are treated the same as a sole proprietorship, so the owner reports all income on their personal tax return. Multiple-member LLCs are treated as partnerships.
Recordkeeping Tips for Single Member LLCs
Since LLCs are generally partnerships or owned by multiple members, maintaining an LLC with just one owner can be tricky. Here are a few suggestions to help it run smoothly.
- Keep excellent records. Do this as though you were a corporation.
- Include all resolutions that document decisions made for the company.
- Keep your personal finances separate from your business income and expenses.
- Take money from your business as a salary, rather than dipping into the business accounts to pay personal expenses.
- Be sure to sign business-related paperwork on behalf of the LLC. For example: “Jane Smith, on behalf of Smith Bakery, LLC.”
How to Fill Out Form 8832
Here are the basic instructions needed to complete IRS Form 8832.
- Provide information on your business including business name, address, phone number, and Employer Identification Number (EIN).
- If you do not have an EIN, which is a tax ID for businesses, you will need to obtain one before you can fill out Form 8832.
- If you just formed your business and are choosing a tax classification, choose the option “Initial Classification by a Newly Formed Entity.”
- If you have already filed taxes under one entity and want to switch, choose “Change in Current Classification.”
- Question 2a asks if you filled out another form 8832 within the last 5 years. Although there are exceptions, businesses may not change their entity election within a five-year period.
- Question 2b asks if your entity was newly formed, and the effective date of the formation, a question also used to determine your eligibility to change your election.
- Question 3 asks if the business has multiple owners or just one.
- If only one owner, put this down for Question 4 along with the owner's identifying number, which may be the owner's Social Security Number.
- Question 5 does not apply to single-member LLCs.
- The next few questions allow you to choose your desired tax treatment. It's a multiple-choice question, so pick the answer that fits your situation.
- Question 7 requires information on the country where your business was founded, if it was formed in a different country than the U.S.
- Question 8 asks the effective date you wish your choice to take effect. This date may be retroactive up to 75 days before you filed the form, or within 12 months after.
- Finally, the form needs to be signed by the business owner.
Remember, the IRS requires businesses to wait five years before making another change to their tax status. Therefore, it's in your best interest to consult with an attorney or CPA before making this decision and submitting the form.
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