Choosing a date to start your business shouldn’t seem like a big deal, but believe it or not, there is a “best” time to start, and it’s at the end of the year. Whether you are beginning a brand new venture or considering moving from a sole proprietorship to a limited liability company (LLC) or corporation, choosing the right date can increase the benefits your business receives and make your life just a little bit easier. Read on for five reasons why the end of the year is the best time for you to start your business.
January 1st Effective Date.
New beginnings, a fresh start – these are things we associate with January 1st. What better way to remember deadlines and keep your finances straight than by having a January 1 effective date? With your finances set in a traditional fiscal year, life becomes immensely easier for your accountant.
Delayed Filing = Beating the Rush.
Most states will let you pick a future effective date, so you can begin the paperwork now and still request the January 1 effective date. Check with your state’s guidelines to see how early you can file your paperwork – typically it is 30-90 days before your effective date. Getting started early means you’ll beat the rush of businesses trying to file paperwork at the end of the year, and you’ll avoid any processing delays due to the holidays.
Reap the Benefits.
If you are a sole proprietor and considering becoming an LLC or corporation, making the change sooner rather than later allows you to reap the benefits. If you choose an LLC structure, then you are no longer personally liable for the debts of the company and you receive protection against your personal assets. In addition, moving to an LLC means that all income and losses are now passed through to the members.
Transitioning to a corporation structure before the end of the year can help provide significant tax savings, especially if you become an S Corporation. Not only will you save on the self-employment taxes, but also S-Corps are not typically required to pay corporate taxes, and instead pay taxes on dividend earnings. Speaking of taxes…
Do Less Paperwork.
If you’ve started the year as a sole proprietor and intend to switch to a corporation or LLC, making the switch mid-year means you’ll have to file twice the paperwork. One set will be with your personal social security number, and another set with your employee identification number. No one enjoys doing their taxes (unless you’re a tax preparer), so avoid the extra work, and prepare to make the change at the end of the year, giving yourself a clean slate for taxes and annual reports.
Take Advantage of the Savings.
Most people enjoy saving a buck and business owners are no different. When it comes to starting a business from the ground up, there are so many expenses that you may not think about. Office supplies, electronics, software, furniture, the list can go on forever. But, starting at the end of the year means you can take advantage of the savings targeted toward holiday shoppers. Inventory needs to be cleared out to make way for the latest and greatest which often means deep discounts at the end of the year. Make a list of everything you need, do a little research to find the best deals, and save yourself some cash before you even open your doors.