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8832 Form: What You Should Know

Filing Status: Partnership.

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FAQ - Form 8832

On Form 8832, question 5, do I write the names with SSNs or the LLC with EIN, or neither?
I apologizing ahead of time here for my posting to follow.  I really don’t have anything against you personally but rather against your “Type”. SOAPBOX mode on. This fact that you are asking this question is indicative of the “mentality” of many “startups”.  You do not know what you do not know and you try to “DO IT YOURSELF” without proper guidance.  These seemingly simple questions that you are asking WILL have ramifications on how your business entity is taxed in the future and how your personal return will be affected in the future.  The personal and financial goals and objectives of both yourself and your business associate as well as the goals and objectives of the business MUST be considered before you can make the selection between a partnership and a Corporation or if an S election should be made.  This conversation I have with any potential client and takes anywhere from 30 minutes to two hours.  There are too many pros and cons to each of the three (yes 3 not just the two you’ve mentioned) to address in this forum.  Seek yee competent professional advice. SOAPBOX mode off That said ‣ if you “conducted” business last year (2023) then this should have been addressed when the entity was formed.  If you elect corporation then the tax return is due on the 15th day of the third month after the year end.  March 15th for a December year end (note you do not necessarily have to be a December year end).  If you select partnership then the return is due April 15th.  If activity occurred in 2023 make whatever uninformed choice you may.  If you select partnership neither box 4 or box 5 should be filled in.  Now if activity did not start until 2023 STOP ‣ DO NOTHING follow the advice in my soapbox mode.  Do not expect to be able to make an appointment with a qualified CPA until after 4/15.   I hope I have helped somewhat.  Again I apologize.
Is there any benefit for an LLC to classify itself as a Corporation (as opposed to a Partnership) under form 8832?
If the business is an operating business and if you elected S corporation status you may be able to reduce payroll taxes and the additional ObamaCare Medicare tax. If the business is an investment entity (like the ownership of rental properties) the LLC gives more flexibility and isn't burdened with the payroll tax issues. The answer is simple and complex, generally operating companies are best as S corporations and investment companies are best as LLCs. However, always discuss with your attorney or CPA.
Should Late Election Relief under IRS Form 8832 still be sought if the entity is only making an initial classification, and not a change in the current classification?
An 8832 Form is only needed if the entity does not wish to accept the default classification as follows:Single Owner LLC-Disregarded EntityMulti-Owner LLC-PartnershipCorporation-C Corporation (although as a general rule S corporation is the only other option for a new Corporation and you make that election on Form 2553 and do NOT file an 8832)If the entity wishes to be something other than the above default tax classification, then you have 2 1/2 months from the date of formation to make the election.If you did not make your election within that 2.5 month window, then you will have to seek relief for the late election.
Can a single-member LLC (by default, a disregarded entity) elect to be taxed as a corporation via IRS Form 8832?
Yes, a single-member LLC may elect to be taxed as a corporaiton by filing Form 8832.Quoting the last sentence of the first paragraph on the IRS page at Single Member Limited Liability Companies:And an LLC with only one member is treated as an entity disregarded as  separate from its owner for income tax purposes (but as a separate  entity for purposes of employment tax and certain excise taxes), unless  it files Form 8832 and affirmatively elects to be treated as a  corporation.
Are there any good reasons to set up a "US LLC filing as a C-Corporation (Form 8832)", rather than simply setting up an actual "US C-Corporation"?
Don't get confused with the difference between entity formation and taxation of that entity.  The formation of entities is done at a state level and the choices are many.  The taxation of an entity is done through declaration to the IRS, which removes any confusion between the intent of ambiguous entities, such as LLCs. You actually won't be able to set up a US anything.  You have to pick a state to set up the entity, and for this, you really should get some help from your advisor.  It sounds like you are from outside of the US.
Can a single-member LLC elect to be treated as a corporation by filing Form 8832 and pay the corporate tax rate of 21%?
Of course it can.That’s what Form 8832, Entity Classification Election is for.And now that the corporate tax rate has been reduced from 37% to 21%, more Single Member LLCs are choosing to do that.They set their salary equal to the anticipated profits of the business, and in effect, reduce the profit to zero, and pay no corporate taxes.Of course, the better choice might be for the LLC to file Form 2553 and elect to be treated for tax purposes as an S Corp, then set a salary of about one-third of the anticipated profits, and the remaining two-thirds drops through as taxable income, but not subject to the Self-Employment tax of 15.3%.And if the LLC is operating a rental real estate business, the SMLLC can just file no election, be classified as a Disregarded Entity for tax purposes, and all of the income will be considered passive income, and not subject to the 15.3% SE tax.The LLC is the best of all of the Business Entities for liability protection, and for tax planning, depending on your situation.I hope this helps.Michael Lantrip, Attorney | Accountant | InvestorMichael Lantrip
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