WHEN IS THE RIGHT TIME TO INCORPORATE?
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. 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 your business is involved in an industry or activities with a lot of liability, then you should incorporate 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 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, the first for the months that you operated as a sole proprietor, and the other tax filing for the months after you incorporated.
INCORPORATE 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. 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 to 60 days to bring a corporation into existence after you submit your filing documents with the state office. Filing your paperwork with the help of an attorney, usually the attorney can get your paperwork back faster than if you file by yourself.
Remember: if you have a pressing need to incorporate due to liability concerns or you want to take advantage of significant tax benefits, then you should incorporate your business as soon as possible.
For more information on how to legally protect your business please buy a copy of my bestselling book: ‘Go Legal Yourself’ on Amazon or visit my website at www.golegalyourself.com
Disclaimer: This information is made available by Bagla Law Firm, APC for educational purposes only as well as to give you general information and a general understanding of the law, and not to provide specific legal advice. This information should not be used as a substitute for competent legal advice from a licensed professional attorney in your state.