By James Gilmer
Whether you’re going to the gym, reliving a relationship, or starting a new business, the start of the year means a fresh start. If you’ve been considering forming or starting an LLC, you may be wondering why so many entrepreneurs choose January as the formal “start date” for their new business. After all, we may not all have exactly the same New Year’s resolution, right?
The reality is that starting a business early in the year offers distinct benefits. Savvy business owners all have goals just like us, but they plan to file their filing on behalf of legal entities to save startup costs and take advantage of tax breaks. They also know how to start before the end of the year so they can really get started in the new year.
1. Tax and accounting benefits
Show me a business owner who enjoys extra taxes and paperwork … I’ll wait. For this very reason, January is the best time to start a new business – there is less bureaucracy!
First, bookkeeping is a lot easier. Instead of keeping and closing the books for a few weeks of a short year, many entrepreneurs like a clean January 1st start date.
In general, companies are required to file tax returns for every year they existed, regardless of how much revenue or profit they made during that time. In addition, owners are required to disclose gains and losses on their LLC or shareholders’ income from their corporation on their personal income tax returns. This gives many entrepreneurs a choice: to set up the company at the end of the year and file the business tax return immediately, or choose a start date in January for their business unit and file their first tax return the following year.
Many entrepreneurs have no practical reason to collect the additional taxes, fees, or overall complexity of filing a business tax return for a few short weeks of activity. As a result, they can choose to start their business in January and postpone that headache until next year. In addition, business owners may be able to deduct additional startup costs such as home office space, government registration fees, and professional service fees. It is therefore important to seek advice from an accountant or lawyer on what is possible and when.
2. Overcome the onslaught of government agencies
By now, you may think that starting your business on January 1st is a good idea. But wait you say Are government agencies not closed on New Year’s Day? How could I secure this start date for my company? That’s a good question.
Also, keep in mind that thousands of people in the United States file business entity formation documents in the first few days and weeks of the New Year. As a result, the offices of state-owned companies and their employees are left with a huge backlog of business records each year. This means that entrepreneurs have to wait an unusually long time for their company to be officially founded. Those extra days – or even weeks – can result in delayed profitability and immediate frustration.
The secret lies in the company’s founding document. Depending on the type of entity you have formed and your status, you may find a question that looks something like this:
Image Source: Florida Department of State Organizational Article for LLCs
This example is taken from the Florida LLC organizational articles. You will find that the State Department gives the organizer a choice: whether their office should approve the LLC when they receive this document, or on the date set by the organizer.
In this example, a business owner could enter January 1st as the desired effective date and submit it to the state now. State examiners process the submission in the order in which they are received (i.e., before the rush). However, entrepreneurs will be happy to see their business appear on official government records with a clean incorporation date on January 1, 2021.
A word of caution: a small handful of states do not allow companies to specify a future effective date. If this is the case for your state, then you might just have to stand in line. Whatever the case, when starting a business, you should consult an attorney about when, where and how to file your records to incorporate or form an LLC.
Other items from AllBusiness.com:
3. State Compliance Benefits
After their inception, companies continue to have compliance obligations to stay in good shape and continue to operate legally. This typically includes appointing a registered agent to serve litigation, filing annual reports with the Foreign Minister, and filing and paying government franchise and income tax returns.
Each company must appoint a registered representative at the time of submission to the State Secretary. Without it, the company’s articles of association or articles of association will be rejected immediately. This has even greater consequences at the beginning of the year. Rejected and resubmitted business documents end up at the end of the queue.
In most states, the Secretary of State’s annual reports and tax returns are usually due one year after the company is incorporated. Just like with federal tax returns, business owners can choose a January 1 start date to avoid filing with additional government agencies within a few months of launching. Since most states charge a filing fee or franchise tax (which can be quite high, like California), waiting can result in costs being saved or at least deferred.
As the holiday season begins, many of us, including business owners, relax and crouch (safely) with family. However, during the additional downtime, it can be helpful to spend a few extra hours planning when to register a new business so as to get a new business off the ground quickly in the new year. And as we all know, in a world of COVID-19 and uncertainty, any start can make all the difference.
CONNECTED: Should you be registered as a sole proprietorship or LLC?
Harbor Compliance does not provide tax, financial, or legal advice. Using our services does not create a relationship between lawyer and client. Harbor Compliance is not acting as your advocate or verifying the information you provide to us for legal accuracy or sufficiency.
About the author
Contribution by: James Gilmer
James Gilmer is a Compliance Specialist at Harbor Compliance, a leading provider of compliance solutions for businesses of all shapes and sizes. Founded by a team of state licensing specialists and technology innovators, Harbor Compliance has helped more than 25,000 companies apply, secure, and maintain licenses in all industries. James is passionate about helping nonprofits use compliance to improve their fundraising and program activities, and educating the sector on compliance issues. James is also co-founder of Berks Sinfonietta, Inc., a non-profit chamber orchestra based in Reading, Pennsylvania.
Company: Harbor Compliance
Website: www.harborcompliance.com
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