You’ve decided to set up your new corporation or LLC and you want to get started right away.But before you form your corporation or LLC this late in the year, you have a decision to make: should you form with an effective date in 2012 or 2013?
Consider forming now but requesting an effective date of January 1st, 2013.
What is an effective date?
When an INC or LLC is formed in any state there are two dates to consider: “filing date” and “effective date.”The filing date is the date the corporation or limited liability company is approved or filed by that state.Whereas, the effective date is the date that filing will be effective.For example, if your corporation’s papers were just submitted to your state, maybe your corporation would be ‘filed’ on 12/15/2012, but you specified an ‘effective date’ of the corporation of 01/01/2013.So, even though some of your paperwork may say “2012” on it because that was the date processed by the state, the date the corporation will have been considered to start or be effective is 1/1/13.
Does it matter?
So, what do a few days matter when it comes to your forming the next Apple or Twitter?There are several good reasons to consider filing now and requesting a 2013 effective date.
State taxes – Probably the best reason to consider a 2013 effective date.Many states impose extra taxes or fees on an entity that is formed effectively in 2012 vs. 2013.That is because many states go by a calendar year and not a fiscal year when considering fees/taxes.So, even though there are less than two months left in 2012, if your entity is formed effective in 2012, it might be responsible for 2012 tax assessments.
For Example, California imposes an $800 minimum franchise tax on California LLCs, four months after they are formed, plus an annual $800 minimum franchise tax due April 15th.So, if your LLC were formed 11/15/12, it would have to pay $800 on 3/15/13 and at least $800 on 4/15/13.But forming to be effective on 1/1/13 would eliminate one of those $800 tax payments in 2013.
To see what your state does, check out “State Research” in our Research Center.
Easier bookkeeping – Forming effectively at the start of the year will make bookkeeping a lot easier for you because you will not have to file a return for your LLC or INC for the short year of 2012.Most likely you will list all your business expenses under Schedule A of your 2012 personal tax return and then start fresh in 2013. Talk to your tax professional about this.
Filing times – Because filing times are traditionally slower at the beginning of a new year, you might find it better to submit your filing now but request an effective date of 1/1/13.You’ll benefit from much quicker filing times at the end of the year when less businesses file with the state and so filing times are much quicker.
Easier transition – By filing now with a future effective date of 1/1/13, you can better prepare around that date, making the transition from sole proprietorship to INC or LLC much easier.
S Election – If you plan on making the S Election with the IRS and you start effective 1/1/13, you'll have until 3/15/13 to submit your S Election. This will again give you more time to prepare for transition.
What about my state?
Not all states offer a future effective date.Those states that don’t often make special allowances for the desire of small biz owners to form on 1/1/13.For instance, in California (no future effective dating is allowed) the Secretary of State allows over-the-counter filers to submit to a ‘hold pile’, which is then processed and stamped 1/1/13 after the new year (in the order filings were delivered to the SOS).
Each state is different in their processing, so you need to check to see your state's requirements.
Have SmallBiZ.com form your INC or LLC effective 1/1/2013
Let SmallBiZ.com handle all the details of your corporation or LLC or LLC filing effective in 2013 for as little as $25 plus state fees! We'll ask you what you want, and we'll take care of the rest.
CEO & Founder of SmallBiZ.com, created over seventeen years ago to help small business owners simplify the process of starting & managing their small businesses. SmallBiZ.com now serves over 10,000 businesses per year with various filing and subscription services; in addition to the 1000's of daily visitors to www.smallbiz.com, accessing free services, help pages, & educational videos & webinars.