2019 is just around the corner. If you have been thinking about changing your business structure to an LLC or corporation, you might be wondering if it’s better to do it now or wait until the new year. Your clients might be wondering the same thing for their businesses.
'Tis the season for this hot topic, so let’s dig into it!
I believe you’ll find this information helpful when contemplating your own business’s legal structure and when assisting your clients with their business tax needs.
*This post is not intended to constitute legal or tax advice; you and your clients should consult a legal professional before making decisions about business incorporation.
So should You Form an LLC or Incorporate Now or Wait Until the New Year?
With CorpNet handling business registration paperwork for business owners, I've found that December and January tend to be extremely hectic months for Secretary of State offices across the country. Because many entrepreneurs want to get their LLCs and corporations registered for the New Year, paperwork backlogs can happen, and the time it takes for states to approve filings can extend beyond what is usually a turn-around period of only few weeks. So, submitting an application in December in hopes of having a business entity active by January 1 might turn out to be an exercise in futility.
That may be fine if you (or your clients) don’t care when your business entity is legally active, but timing means a lot. In fact, getting a January 1 effective date has some perks.
If you’re thinking, “But Nellie, you just said filing business registration paperwork now might be a lost cause.” Don’t become discouraged! There is one way to file now and have a business up and running at the start of the New Year: Submit a “delayed filing.”
Benefits of Filing for a Delayed Effective Date of January 1
A delayed filing, available in many states, lets a business submit its registration paperwork with a future-dated effective date. If a business submits its registration forms between now and the end of 2018 and requests an effective date of January 1, 2019, even if the state doesn’t have time to process and approve the paperwork until after that date, it will likely grant the January 1 effective date. (Keep in mind that because state office’s are closed on January 1, the earliest 2019 effective date possible is January 2 when a delayed effective isn’t requested or allowed.)
While a business can ask for any effective date that meets the state’s criteria (usually within 30 to 90 days before the requested effective date), asking for January 1 simplifies matters at tax time.
January 1, the very first day of the New Year, gives a clean start so that a business only needs to file one set of tax forms for the current tax year. Conversely, when forming an LLC or incorporating any other day of the year, a business needs to submit two sets of tax forms:
- Tax return for the business entity type it operated as during the months before its incorporation date
- Tax return for the LLC or corporation for the months it operated as such for the remainder of the year.
Also, in states that levy LLC franchise taxes, an LLC that files with an effective date of January 1, 2019 would not have to pay those fees for 2018. The same goes for other corporate formalities when a business entity has an effective date of January 1.
How to Request a Delayed Effective Date for an LLC or Corporation
When submitting the necessary paperwork to register a business, in states that allow a delayed effective date, the date desired must be identified on the formation paperwork. The information and layout of Articles of Organization and Articles of Incorporation forms can vary from one state to the next, and it's crucial for business owners to complete the forms carefully. Any errors or omissions might result in processing and approval delays.
Business owners can save time and have the peace of mind that filings are done correctly by using an online business document filing service. This option can also save money when compared to what they might spend if asking an attorney to handle the paperwork.
How Can You Help Your Clients Move Forward With a Delayed Filing
You know, of course, that you may not offer legal advice to your clients. However, you can advise them on the tax considerations of the different business entity types. And, after clients have talked with their attorney and decided on forming an LLC or incorporating, you can, by joining a partner program, assist them in preparing and filing their paperwork. Doing so can deliver more value to your clients while giving you a way to expand your services and revenue stream.
To dive deeper in this topic, register for Nellie Akalp's AccountingCred webinar on Tuesday December 4th, Should Your Clients Incorporate Now or in The New Year?
MarvinSteindler
Nellie Akalp CorpNet FINAL
Author Bio: Nellie Akalp is a passionate entrepreneur, small business advocate and mother of four. She is the CEO of CorpNet.com and recently launched a partner program for the accounting community. Accountants, CPAs, Bookkeepers and other professionals can offer business incorporation and compliance services to their client to extend their services but CorpNet does the work. More info at: CorpNet.com/partners