Change LLC tax election [Real Research]

Last updated : Sept 15, 2022
Written by : Augustus Jodway
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Change LLC tax election

Can I change my LLC tax filing status?

An LLC can elect to change its classification. Generally, once an LLC has elected to change its classification, it cannot elect again to change its classification during the 60 months after the effective date of the election.

Can you change the way your LLC is taxed by the IRS?

An LLC that does not want to accept its default federal tax classification, or that wishes to change its classification, uses Form 8832, Entity Classification ElectionPDF, to elect how it will be classified for federal tax purposes.

What happens if you don't file form 8832?

If you don't use Form 8832 to make an election, the IRS will tax you based on your default entity classification, and you could end up paying more than you need to. By making the right election, however, you may be able to save thousands of dollars every year. This can also help protect your personal finances.

What is the best tax classification for an LLC?

The best tax classification for an LLC depends on whether you want your business profits to be taxed at your personal income tax rate, or at the corporate tax rate. If you'd prefer personal tax rates, you can classify it as a disregarded entity or as a partnership. Otherwise, you can classify it as a corporation.

How do I change my tax classification?

Tax form 8832 is typically used by partnerships or Limited Liability Companies (LLCs) to choose or change their tax classification. In technical terms, Form 8832 lets taxpayers elect to classify or reclassify their entity structure from one type to another.

Should I elect S corp status for my LLC?

Electing S corporation tax treatment for your LLC is often the best option for active businesses or those who are subject to high payroll taxes. Both an S corporation and an LLC offer limited liability protection. This means the owners' personal assets are protected from business debts and legal judgments.

How do I notify the IRS of an LLC change?

More In Forms and Instructions Form 8822-B is for businesses and other entities with an Employer Identification Number application on file. Use Form 8822-B to notify the Internal Revenue Service if you changed: Business mailing address. Business location.

How do LLC owners avoid taxes?

An LLC can help you avoid double taxation unless you structure the entity as a corporation for tax purposes. Business expenses. LLC members may take tax deductions for legitimate business expenses, including the cost of forming the LLC, on their personal returns.

Is LLC income taxed twice?

Your LLC profits are taxed at your individual income tax rates—just like when your LLC is taxed like a sole proprietorship. No double taxation and you can qualify for the pass-through deduction.

Why should an LLC file form 8832?

Form 8832 is used by LLCs to elect how they wish to be taxed. LLCs are created under state laws and aren't recognized as a type of entity for federal income taxes. Therefore, LLC owners must elect their entity type for federal income taxes.

Should I file 8832 for my LLC?

Do I have to file Form 8832? No, this is an optional form that is filed if you would like your LLC to be taxed as a corporation. After it is filed, your LLC will file a corporate tax return and be subject to corporate tax rates.

How late can you file form 8832?

There's no “deadline” to file Form 8832 — you can file it either right when you start your business or at any point during your business's lifetime. However, the filing date is important. The tax status for the business is effective either: Up to 75 days before filing the form.

Who has the most power in an LLC?

Manager(s): An LLC Manager is a person (or persons) responsible for running the day to day operations, makes business decisions, and has the authority to bind the LLC into contracts and agreements. There are 2 types of LLC Managers: Internal Managers and External Managers.

Can I file my LLC and personal taxes separate?

The IRS disregards the LLC entity as being separate and distinct from the owner. Essentially, this means that the LLC typically files the business tax information with your personal tax returns on Schedule C. The profit or loss from your businesses is included with the other income your report on Form 1040.

Does an LLC with tax classification S or C?

An LLC is a legal entity only and must choose to pay tax either as an S Corp, C Corp, Partnership, or Sole Proprietorship. Therefore, for tax purposes, an LLC can be an S Corp, so there is really no difference.

How do I change my business classification?

To make sure your change is recognized, the SBA recommends that you: File a DBA (Doing Business As) form (you can do this online on your state's website and with the IRS) Register with the IRS to apply for an updated Employer Identification Number (EIN) (you'll need that to file your taxes and pay your employees)

Can you change your EIN classification?

However, you might need to file a document for changing the business name with the IRS and/or state and local government. However, if you change your entity classification, you will need a new EIN.

How do I change my revenue status?

  1. click on 'My Profile'
  2. select 'My Details'
  3. click on 'Edit' in the Personal Details tab.
  4. select your new civil status from the dropdown menu.
  5. provide all relevant information as requested.

Is single-member LLC better than S corp?

So the main difference is with a single-member LLC, only the business owner can report business profit/loss on their personal taxes, whereas in an S-Corp, all shareholders can. When starting a small business, many entrepreneurs end up deciding between two types of business entities—LLC vs.

Is it better to be a single-member LLC or S corp?

LLCs offer more flexibility in terms of allocating profit percentages to owners. S corporations offer better options for how profits are distributed. They can be paid as salaries to the owners, or they can be given as profit distributions. S corporations provide more options for tax planning and reduction.

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Change LLC tax election

Comment by Dylan Degrace

we're going to talk about how to change your llc tax status to a corporation or s corporation your financial advisor or tax professional may have told you the potential benefits if you decide to have your llc file an election to be taxed as either a corporation or an s-corporation and this video discusses the benefits and process of filing such an election and the correct forms to use for making this election now the purpose of this video is to provide general information only before you take any action on anything covered in this video get the advice of a licensed tax professional such as a cpa and that was called my cya cover your you know the rest now if you change the llc's tax status to a corporation or an s corporation the legal status of the llc remains the same in other words you still function as an llc in every way such as the legal protection that it provides the only real difference is how it pays taxes how an llc is usually taxed by default a limited liability company llc is not recognized by the irs as a taxing entity so how the members pay tax is based on how many members that it has a single member llc is treated as a sole proprietorship or disregarded entity on the member's personal tax return a multiple member llc is treated for tax purposes as a partnership so your cpa will typically file a 1065 partnership tax form and the partners get the k1 form to attach to and report income or losses on their personal tax returns now both single member and multiple member llcs may elect to be treated as corporations or s corporations for income tax purposes and if you do have a single member llc there is a dating app for that so you can find a partner and live happily ever after electing corporation versus s corporation status now the process of changing the tax status of an llc to a corporation or s corporation is called making a tax election the two processes are different to elect corporation status one must file the irs form 8832 entity classification election for the llc to elect s corporation status the llc must file irs form 2553 election by small business corporation now back in the old days we would file the 8832 form and choose corporation taxation afterwards we would file the 2553 form and choose s-corporation election the irs website says that two-step process is no longer necessary an s-corporation is a corporation tax classification not a separate type of business a business that is already a corporation files the form 2553 to elect to be treated as an s-corporation llc is electing to be taxes corporations filing the form 8832 if you want your llc to be taxed as a corporation you must file the form now here are some things you need to know about this election this form allows eligible entities to file this election and llcs are by definition eligible entities this form also includes a consent statement which may be signed by all of the llc members or by one member on behalf of all the members if one member signs there must be some record in company membership meetings that all members approve to this election you must provide the names and identifying numbers of the owners such as the social security numbers for single member llcs and employer ids for multi-member llc's now the first section helps you to determine the eligibility of your business to apply for this change the second section asks you to select the current entity type and the type you are selecting the terms domestic and foreign in this section have to do with the state or country where the business is registered by the way llcs are disregarded entities or partnerships by default depending on how many members so no need for an 8832 to keep it that way but with an offshore llc you do need to elect disregarded entity or partnership status with the 8832 form the last section includes a consent statement and requires signatures single owner llcs and forms 8832 if your llc has only one member a single member llc the options noted on the form are to be classified as an association or be disregarded as a separate entity an llc with only one owner can be classified as a disregarded entity now this designation means the llc is not separate from the owner for income tax purposes filing business income taxes on schedule a c as part of the owner's personal tax return there is nothing you need to do to have this classification and for that matter i could use a classy vacation i'm thinking barcelona maybe the bahamas now if you checked no in box three because you don't have more than one owner you will need to give the owner's name and identifying number taxpayer id number then in part one box six you would check box c a domestic eligible entity with a single owner electing to be disregarded as a separate entity or box f a foreign eligible entity llc electing to be taxed as an s corporation in the same way as a corporation elects corporation tax status an llc may elect s corporation tax status by filing irs 2553 with the irs this election must be made with no more than two months and 15 days after the beginning of the tax year when the election is to go into effect so why elect s-corporation status the other tax option for your llc is to elect to be taxed as an s-corporation your llc will need to meet the eligibility requirements of an s-corporation both the llc by default and the s-corporation status are pass-through entities meaning that the income of the business passes through to the owners s-corporation status has two benefits first it allows the business to avoid the double taxation issue of corporations double taxation is taxing the c corporation on its income and then taxing the shareholder on its dividends in fact my grandmother once said harold when i touch the refrigerator and the stove at the same time i get shocked my grandfather replied well don't touch them both at the same time then along those same lines one way around the double taxation with the c corporation is to just pay a salary to the owners the salary is tax deductible to the corporation and simply don't pay dividends now s corporation officers who work for the business are considered employees they are not considered self-employed and they don't pay self-employment taxes social security and medicare on distributions of profits to the shareholders of the s corporation this can be a tremendous tax saving for those owners but it is very important to know that they must be paid a reasonable salary in addition to the distributions and pay income taxes social security and medicare on the salary portion of their income if you want your llc to be taxed as an s corporation you just need to file the form 2553 you don't need to elect to be taxed as a corporation first like we used to do in the old days form 2553 is similar to form 8832 above with some differences the election begins on a specific tax year and you must select the type of tax year including the fiscal year or financial year form 2553 discusses shareholders but your llc probably doesn't have shareholders in this case you should enter the percentage of ownership and the date acquired a single owner llc would have 100 of the ownership

Thanks for your comment Dylan Degrace, have a nice day.
- Augustus Jodway, Staff Member

Comment by Lindsey

hey this is attorney elizabeth potts weinstein and today we're going to be talking about how to make your llc be taxed as an s corporation so if you have a llc or limited liability company for your business the default is that it is taxed just as if you were a sole proprietorship if there's only one owner or it's taxed as a partnership if there are multiple owners but you may want it to be taxed as an s corporation instead for the various tax benefits that exist for us corporations now before you make the election with the irs to turn your llc into something that is taxed like an s corporation you have to have your llc it has to already be formed and you have to already have gotten your ein from the irs i have videos about both those things and you can see the links for that below the deadline to elect to have your llc be taxed as an s corporation is two months and 15 days after the tax year starts where you want it to count now that calculation if you just formed your llc yesterday it's two months and 15 days from yesterday when you form the llc even though it's the middle of the year right now but if you want your llc to be taxed as an s corporation next year you can either file it now you can file it ahead of time and say you want it effective as of january 1st or you can file it in the first two months and 15 days of next year and have it be effective for that next year what if it's too late for you what if it's way past two months and 15 days when you want this to be effective there is a way to still get that s corp election for your llc for either this year or even prior years but it has very specific rules and things that you have to do so we're going to talk about that but it'll be more at the end of the video because i want to show you exactly in the form where you're going to do that so to have your llc be taxed as an s corp you have to file a form with the irs this is a not an online form sadly it is a pdf that you're going to fill out and print and sign and you're either going to fax it to them or you're going to mail it to them so let's go ahead and look at the various irs website pages which i will also have linked below that apply to this and also the pdf so the first thing you want to do before you make this election is make sure that you actually are allowed to do it there's a bunch of different qualifications most of which are probably true for you it has to be domestic so it can't be a corporation formed in another country it can only have allowable shareholders or owners of this business so it can be individuals it can be certain kinds of trusts like if you have a revocable living trust that owns your business and it has to be people who are either u.s citizens or residents like green card residents this is the thing that tends to trip up my clients is one of the owners is not a u.s citizen and doesn't live here they don't have a green card they're in another country you cannot be an s corporation either analysis texas s corporation or corporation tax a census corporation you also have to have no more than 100 shareholders most of my clients this isn't isn't an issue for them but sometimes people will have outside investors and things like that and this will come up the other big thing that comes up is you can only have one class of stock so sometimes when people get outside investors and they're passive investors or they want their money first or whatever they'll set up different classes of stock they'll have preferred stock they get paid up first because they're preferred et cetera you can't do this and be an s corp that's c corp land so assuming that you meet all the different qualifications then let's go look at the form that you're going to need to fill out it's form two five five three election by a small business corporation and this is the same form if you're a corporation that wants to elect to be an s corp or if you're an llc that wants to be elected as an escort i'm gonna link to the main page on the website that has these forms but since links may change all you have to do is go to the irs's website and search for form 2553 and then you'll see that the links come up there just in case these links change in the future so there's a form which is a pdf that you're going to fill out and then there are instructions for it i recommend that you pull up the instructions and have them handy because you're going to need that information later let's go ahead and look at form 553 the first page tells you where you file so in half of the states you're filing it in kansas city missouri and the other half of the states you're filing it in utah but they also have fax numbers which are two different fax numbers depending upon where you're located it's probably a good idea to fax it in instead of mailing it because if you mail it who knows the post office is going to lose it and then also it'll take longer and i actually think they process that slower because someone has to literally open up the envelope and everything during the 2020 2021 situation the irs had literally like truckload tractor trailers full of mail that was unopened so faxing will avoid that kind of a problem i don't know how much faster it will be because they're very very very behind but probably faster than the mail so next let's actually look at form 553 some of the beginning parts are fairly simple you're going to put the name of the llc so pots weinstein financial consulting llc is my made up names for today you're gonna put the ein which you need to have already gotten so one two three four five six seven eight nine i can't remember how many numbers it is all right the number street and room or suite number the date incorporated which is the date you formed this thing so let's say we formed it um 5 1 20 22 just as a random date um san francisco california 133 day state of incorporation so let's say you formed it in california check the applicable boxes if the corporate entity after applying for ein changed its name or address so if i made this business as of may 1st and right now i'm recording this on may 6. i haven't changed the name of our address but if it's been a while you might have done that since you formed the ein so that's one of the things you would check there election is to be effective for tax year beginning month day year so if you want it to be effective on the day you formed your llc then you would put that date here zero five zero one twenty twenty two but let's say it's here in 2022 in may 2022 and you want it to be effective for the tax year 2023 so you'd put january 1st 2023. it's that straightforward just to figure out which year you want to count and if it's you started your business in the middle of the year it's the middle of the year otherwise it's usually going to be january 1st speaking of tax years section f is about what tax year are you going to be using so most businesses especially most small businesses have a tax year that's the calendar year january 1st through december 31st but occasionally it makes sense to not have that be your tax year so let's say you're a business that you're you sell on ebay and

Thanks Lindsey your participation is very much appreciated
- Augustus Jodway

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