Businesses frequently need to file a variety of papers and paperwork when it comes to taxes. IRS Form 8832 and IRS Form 2553 are two of the most popular forms. Although both are employed to alter a company’s tax position, they have various objectives. In this post, we’ll examine how the two types differ from one another and address some often asked issues about them.
The Entity Classification Election form is IRS Form 8832. This form is used to modify a business entity’s tax status. For instance, a company might file Form 8832 if it was currently taxed as a partnership but desired to be taxed as a S corporation. Each member of the entity must sign this document before it can be submitted to the IRS.
On the other hand, a S company election is made using IRS Form 2553. A company would submit this form in order to be taxed as a S corporation. Within two months and fifteen days of the start of the tax year in which the election is to be effective, the form must be submitted. Form 2553, unlike Form 8832, only requires one signature.
A company’s default tax categorization will apply if Form 8832 is not submitted. For instance, a limited liability company (LLC) business will automatically be taxed as a partnership. If a corporation wants to change its tax status, it’s necessary to complete Form 8832 because doing so could have unanticipated tax repercussions.
It’s crucial to be aware of the Form 2553 submission deadline. As previously stated, it needs to be submitted between two months and fifteen days of the start of the tax year. The most common business date here is March 15. The deadline might be different, though, if the company is established later in the year. To determine the proper deadline, it’s crucial to speak with a tax expert or the IRS.
A specific choice that companies can make to have a fiscal year that doesn’t coincide with the calendar year is known as a Section 444 election. This is frequently done to better fit the natural cycle of the firm, such as a seasonal industry. Form 8716 must be submitted along with the business’s tax return in order to make a Section 444 election. It’s crucial to remember that not every firm qualifies for a Section 444 election.
In conclusion, while changing a business’s tax status is possible using both IRS Form 8832 and 2553, their functions are distinct. Changes to an entity’s tax classification are made using Form 8832, while S corporation elections are made using Form 2553. It’s crucial to submit these paperwork accurately and on time in order to avoid unforeseen tax repercussions. Businesses may also think about making a Section 444 election in order to more closely match their fiscal year with their natural cycle.