Tax preparation can be challenging and daunting, especially for sole proprietors and LLCs with only one member. Form 2553 and Form 8832 are two of the most popular tax forms that individuals have questions about. We shall discuss the nature of these forms, who must submit them, and their significance in this post.
Is Form 2553 Acceptable for a Sole Proprietor? The Election by a Small Business Corporation form, or Form 2553, is another name for it. To choose S corporation status for tax purposes, utilize this form. Because S corporations are regarded as pass-through businesses, the company’s gains and losses are transferred to the shareholders’ individual tax returns. For the business and the shareholders, this may mean tax savings.
The ability to file Form 2553 is not available to sole owners, though. Only corporations that meet particular criteria, such as having no more than 100 shareholders and just one class of stock, are permitted to file this form. Sole proprietorships are ineligible for S corporation status because they do not have shareholders or issue stock.
Does a single-member LLC have to submit Form 8832 in this regard? A limited liability company (LLC) with just one owner is known as a single-member LLC. A single-member LLC is automatically recognized as a disregarded entity for tax purposes. This means that the LLC itself does not file a separate tax return, and instead, the owner’s individual tax return is used to disclose the revenue and spending of the LLC.
However, the single-member LLC can submit Form 8832 if it wants to be taxed as a corporation. The LLC’s corporate tax treatment can be chosen using this form. The LLC will continue to be taxed as a disregarded entity if Form 8832 is not submitted.
When should Form 8832 be submitted?
When the single-member LLC seeks to switch from being a disregarded entity to a corporation for tax purposes, Form 8832 must be submitted. For the adjustment to be effective, the form must be submitted by the tax deadline for that year. For instance, Form 8832 must be submitted before the tax deadline in 2021 if the LLC wants to be taxed as a corporation beginning in 2022. Why do I require Form 8832?
A single-member LLC may opt corporation tax classification by submitting Form 8832 for a number of reasons. Liability protection is one of the reasons. The owner of the LLC might reduce their personal liability for the debts and liabilities of the company by choosing corporate tax treatment.
Does Form 2553 need original signatures in that case?
Yes, original signatures are required on Form 2553. The election must be made within two months and fifteen days of the start of the tax year in which it is to take effect, and the form must be signed by an authorized officer or shareholder of the corporation. Electronic signatures or copies of the form will not be accepted by the IRS.
In conclusion, single-member LLCs can file Form 8832 to elect corporate tax classification while sole proprietors are ineligible to file Form 2553. Before the tax deadline for the year the modification is wished to take effect, Form 8832 must be submitted. Correctly completing these documents can help small business owners save on taxes and preserve their assets. To identify the appropriate tax status for your company, it’s crucial to speak with a tax expert.