Maybe running your company as a sole proprietorship was perfectly fine in the past, but if your business has been steadily adding more clients, working with more vendors, or expanding in some other way, it might be time to change your business structure. By either forming an LLC or incorporating your business, you’ll help protect your personal assets from your business’s liabilities—and you’ll give your brand a credibility boost.
Pretty nice, right?
But with 2016 nearing its conclusion, you might be wondering if you should incorporate now or wait until the New Year.
As you decide, you should know that when changing your legal business structure mid-year, you have to file two tax forms for that tax year:
- One under your employer identification number for the part of the year you were incorporated.
- One under your social security number for the part of the year you were a sole proprietor.
To avoid that headache, consider making your business structure change effective either slightly before or at the start of 2017.
Timing Is Everything: Two Options For Getting It Right
1. Incorporate after mid-December.
In most states, if you file to form an LLC or incorporate after December 17, they will consider your new business structure as effective on day one of the upcoming year (for tax purposes), rather than in the current year. That means if you file after December 17, 2016, you won’t have to deal with the double tax filing frustration even though your effective date was in 2016.
2. Take advantage of the delayed filing option.
In most states, you can do what’s called a “delayed filing.” Rather than saddle yourself with the task of filing paperwork amid all else you have on your plate at the beginning of the year, delayed filing lets you file forms now but delay the incorporation date. You can file to have your new structure take effect on your date of choice (within a certain span of time) in the New Year. With a January 1 effective date, you can make a clean start and avoid the double tax filing requirement I mentioned earlier. Best of all, you’ll have the paperwork out of the way. And after the ball drops in Time Square, you’ll be free to jump right into running your business as its new structure in 2017.
How Do You Request A Delayed Filing?
As you’re completing the online forms to establish an LLC or incorporate, specify the number of days after the filing when you want your business structure to be effective. You also need to make sure your Articles of Incorporation (or Articles of Organization) reflect that effective date, too.
When Should You Submit Your Delayed Filing?
Different states have different rules regarding the delayed filing option. I recommend checking with your state to find out how far ahead of time you need to file. Most states require you to file between 30 to 90 days in advance of your requested effective date.
Finishing Thoughts On Timing Your Change In Legal Business Structure
Depending on when you read this post, you might be down to the wire or past the window of opportunity for doing a delayed filing for January 1, 2017. If you’ve cut it too close, remember you might instead consider filing your forms to create an LLC or incorporate after December 17, 2016. That could serve as an alternative way to have your company’s business structure change recognized as being effective January 1.
Before making any change to your legal structure, I encourage you to consult the expertise of an attorney and accounting professional so you’re aware of all the pros and cons of the options you’re considering. And if you’re feeling a bit overwhelmed about the filing logistics with the crazy-busy holiday season here, think about asking a company (such as CorpNet) that provides business filing services to help you. With informed guidance and timely action, you can still get a jump on giving your business a clean start under a new structure in 2017.
The above content should not be construed as legal or tax advice. Always consult an attorney or tax professional regarding your specific legal or tax situation.