An LLC is a state-law entity. For federal tax purposes it is classified under the IRS "check-the-box" rules, and Form 8832, Entity Classification Election, is how an eligible entity chooses a classification other than its default.

Default classifications

The IRS explains on its LLC page that, unless an election is made:

  • A single-member LLC is disregarded as separate from its owner. An individual owner reports its activity on Schedule C, E or F
  • A multi-member LLC is treated as a partnership and files Form 1065

Many LLCs never need Form 8832 because the default is what they want.

When Form 8832 is used

Form 8832 is filed when an eligible entity wants to:

  • Be taxed as a C corporation instead of its default
  • Change from corporate classification back to partnership or disregarded status
  • Have a newly formed entity start with a non-default classification

An LLC that wants to be an S corporation usually files Form 2553 instead, which also counts as electing corporate classification.

Effective date and timing

An election can generally take effect no more than 75 days before the date the form is filed and no more than 12 months after. Late election relief may be available under the form's instructions when conditions are met.

The 60-month limitation

After an entity changes its classification by election, it generally cannot change again for 60 months, with limited exceptions. That makes the decision worth modeling carefully.

Tax consequences of changing

Changing classification is treated as a transaction for tax purposes. For example, a partnership electing to become a corporation is treated as contributing its assets to a new corporation. Depending on the facts, the change can have tax consequences of its own, so it should be reviewed by a tax professional before filing.

Bookkeeping after an election

When an LLC is taxed as a corporation:

  • Owners who work in the business are paid through payroll
  • Owner withdrawals become dividends or distributions, not draws
  • The entity files a corporate return, and its books need a corporate equity structure

Our bookkeeping services team updates the chart of accounts and equity accounts when classification changes, and our guide to business structure tax considerations compares the options.

Bookkeeping changes after an election

A classification change affects how the books are kept as well as how returns are filed. An LLC electing corporate treatment, for example, generally starts paying owners who work in the business through payroll and records distributions differently. The opening balance sheet on the effective date should be documented, since it becomes the starting point for the new entity's tax records. Ask your preparer to review the equity accounts at the changeover.

Late elections

If the effective date you want has passed, relief for late elections may be available in some circumstances. The Instructions for Form 8832 and its instructions explain the requirements, including the statement that must be attached. Ask a tax professional before filing, since late relief has conditions and choosing the wrong date can create filing problems for prior periods.

Key terms

Definitions for terms used in this guide, from our small business glossary:

  • Assets: Assets are resources a business owns or controls that are expected to provide future economic benefit.
  • Chart of Accounts: A chart of accounts is the organized list of every account a business uses to record transactions in its general ledger.
  • Balance Sheet: A balance sheet shows what a business owns, what it owes and the owners' equity at a specific date.