Now that we're nearing the home stretch of 2010, it's a good time to take stock of various odds and ends for your business. Perhaps you have been considering the idea of incorporating your business, but haven't exactly made the time in your daily calendar or you just aren't sure when is the best time to do so.
When should you incorporate? There is no time like the present, and the simple answer is: right now -- right when you're mulling over the possibility. After all, the sooner you incorporate or form an LLC, the sooner you can start reaping the rewards of incorporation; the potential tax savings and legal protection.
But there are a few other considerations that may influence the timing of your decision.
Paperwork
The first to consider is the paperwork. From a tax reporting standpoint, there is a clear favorite when it comes to incorporation dates, and that's January 1. Incorporate on any other day and you'll be looking at filling out two business income tax returns for that year (one for the months when you were operating as a sole proprietor, and the second for those months after your incorporation became effective).
For this reason, December and January are the two busiest months of the year for state filing offices. And while your legal document filing service may be very speedy and process your request in a day, you'll still be at the mercy of any backlog at your state's Secretary of State office.
It's not uncommon for it to take up to 40-60 business days to bring a Corporation or an LLC into existence after submitting your filing documents to any state office.
Of course, all is dependent on your particular state office. Business.gov offers a handy link to each one. And as state offices grapple with budget shortfalls and employee cuts, wait times will only get longer.
Act Now, Do Delay
Fortunately, there's an interesting option that can put you in the front of the line come January. A Delayed Filing allows you to complete your paperwork and submit your application with a document filing service now, and then delay your actual incorporation date until the new year. This is a great option if you expect to have a slightly less hectic schedule now than in December or January, but don't necessarily want your business to become active until then. By delaying your incorporation filing date with the Secretary of State’s office, you can:
Choose the effective date of your incorporation or LLC formation
Avoid taxes for the current calendar year (Note: if you're making income as a sole proprietor, that income will still have to be reported on your filings).
Avoid having to file an annual report for the current calendar year.
Tax Savings
Of course, a delayed filing is not for everyone. Some consultants or other professionals may need to form an S Corporation in order to be awarded a particular job. For some of you, the tax benefits associated with incorporating are so significant that it makes no sense to wait. After all, the extra dollars in your pocket can far outweigh the hassles of filing before January 1. In other words, it's better for you to receive the tax savings for the remainder of the year, and deal with the added paperwork of your business income taxes and annual reports.
Legal Protection
And then lastly, you might feel you need the legal protection of your own personal assets from any liability owed by the company, sooner rather than later. In this case, I always advise to err on the side of caution. There's literally no time like the present.
But for those of you who see no pressing need to fast track your Incorporation or LLC formation, consider the delayed filing option and ask your document filing service about this feature. You can get your paperwork done at your leisure, select your preferred effective date, and have the peace of mind that comes from crossing off one more thing on your to-do list.
Disclaimer: This post is not intended to constitute legal advice. You should consult with a legal or tax professional before making decisions about business incorporation.
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