Have you been thinking about starting a business or incorporating a business or an existing sole proprietorship?
If so, you might be wondering what’s the best time to incorporate or form an LLC. Should you try to squeeze it in before the end of the year or wait until next year?
Below are three tips for determining when is the best time to incorporate your business:
If You Have Liability Concerns, Incorporate Right Away
If your business is involved in an industry or activities with a lot of liability, then you should incorporate or form an LLC as soon as possible in order to separate your personal finances from your business.
In this case, there’s no reason to wait and expose yourself to anymore liability than you need to.
If You’ll Gain Significant Tax Benefits From Incorporating, Do It ASAP
If your tax advisor has told you that you can significantly lower your taxes by incorporating, you will want to get your incorporation paperwork in as quickly as possible.
Of course, bear in mind that your corporation’s ‘start date’ is not retroactive. Any tax benefits you might receive from incorporating begin on the date you incorporate. This means you’ll typically have to file two business income tax returns for the year:
- First, for the months that you operated as a sole proprietor (or whatever your previous entity may have been).
- Next, another tax filing for the months after you incorporated.
If You’re Looking to Simplify Your Paperwork, Incorporate on January 1st
For small business owners that don’t have significant liability concerns, January 1 is the most logical start date since it eases the paperwork burden. You can start fresh in the new year as a corporation or LLC. Additionally, you don’t have to worry about reporting taxes as two different entities during the year.
Because of this, January is the busiest time of the year for processing incorporation applications at many Secretary of State offices. In some cases, it can take up to 40-60 days to bring a Corporation or LLC into existence after you submit your filing documents with the state office.
If you’re using a document filing service, you can also look into something called a “delayed filing” that lets you complete your paperwork now and then delay your actual incorporation date until next year. This lets you effectively choose the date of incorporation and your application will be fast tracked to the front of the line in January.
If you have a pressing need to incorporate or form an LLC (i.e. you have liability concerns or will get significant tax benefits), then you should form your business entity as soon as possible.
However, if there isn’t a specific sense of urgency, look to incorporate in January and give your business a fresh start in the new year.
Benefits of Incorporating  Photo via Shutterstock