When a limited liability company (LLC) is formed it is assigned a “default” tax status automatically, unless the owner chooses to file under another another tax status. It’s important to choose the best tax classification for your LLC to maximize your tax savings. This taxation can be changed by filing a Form 8832 with the IRS. With this form you can elect to be taxed as a S Corporation, C corporation or partnership. In some cases, companies have been able to save thousands of dollars in taxes each year simply by changing tax status.
The Default Tax Status Rules for LLCs
As with a corporation, certain default rules apply as to the taxation of a new LLC. A single member (one owner) LLC is automatically taxed as a disregarded entity (with everything flowing on to your personal return.) A multi-member LLC (two or more owners) is automatically taxed as a partnership.
When to File Form 8832
The change in classification must take effect within a year after filing or 75 days before filing.
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