Should I file IRS Form 8832?

March 15, 2009 6:30 PM

TaxFilter: Any reason not to file IRS form 8832 for my LLC to be treated as a corp? Need to decide soon.

You are not my accountant... I'll be getting one soon, but apparently not soon enough.

I incorporated at the end of 2008 but didn't earn any income until mid-January of this year. So for 2008 taxes, being treated as a "pass-thru" entity is no big deal. I was going to wait until tax season ended before finding an accountant to sort everything out for 2009, but I just realized that in order to be taxed as a corporation for this year I need to file form 8832 by (oh crap) tomorrow March 16. Form 8832 can be filed up to 75 days after the date it is to be effective, and tomorrow is day 75 of 2009.

Generally I file my individual taxes as married filing jointly and expect 2009 total income in the 28% bracket (either with or without including the LLC's income). Being taxed as a corp would bring the tax rate down for the income earned by the LLC. I expect the LLC to earn $75K or less.

Yes, it's my own fault for not talking to an accountant sooner. But is there any reason I shouldn't fill this form out and send it tomorrow? Am I missing something?

posted by ellenaim to Work & Money (5 answers total)

Best answer: This is not tax advice, and IANYL. Why do you want your LLC to be treated as a corporation and to pay a second level of tax? There are considerations that cut both ways, but the extra level of tax is generally a dealbreaker. I.e., that LLC will earn 75K, the corporation will be taxed at 30%, yielding 52.5K to you, which, after tax at 28% is 37.8K. If you don't check the box, you net 54K. Obviously, with a passthru, you are taxed currently on the LLC's income (whereas you have an opportunity for deferral with the corp--i.e., you don't cause the corp to pay a dividend until you want the money), but since you will control the LLC, you can cause it to make any distributions you want, so there is not a problem with "phantom income."

Call a lawyer or accountant tomorrow to determine whether there are particular considerations that militate in favor of checking the box to be treated as a corporation. I would expect it to be a short call.

Again, I am NOT your lawyer, this is NOT tax advice and cannot be used for purposes of avoiding penalties under the Internal Revenue Code.
posted by Admiral Haddock at 6:46 PM on March 15, 2009

An LLC is a Limited Liability Corporation. It seems to me that this isn't a decision that needs to be made, but a tax law that either applies to you or doesn't.
posted by gjc at 7:53 PM on March 15, 2009

gjc, that is not correct. He has the choice in how to be taxed. I agree with AH, can't see any reason not to stick with pass-through.
posted by entropic at 8:21 PM on March 15, 2009

gjc, an LLC is a limited liability COMPANY, not corporation. As the OP seems aware, an LLC is treated by default as a passthru (i.e., partnership if it has more than one beneficial owner, or a disregarded entity if it has only one beneficial owner). Under the "check-the-box" regulations, the owners of an LLC can elect to treat the entity for federal tax purposes as an "association," subject to the tax rules governing corporations. Hence, the question.

Still not your lawyer, still not tax advice.
posted by Admiral Haddock at 8:21 PM on March 15, 2009

Response by poster: I opted to stick with the default pass-through option. For future reference, neither my question nor the subsequent answers mentioned self-employment taxes (15.3%), which also factor in.
posted by ellenaim at 2:02 PM on April 22, 2009