Delayed Effective Date Filing

Gain tax advantages with delayed filing

If you are planning to incorporate your business at the end of the calendar year, you may want to consider a delayed effective date. Incorporating with a delayed effective date not only provides flexibility, but can also provide tax advantages.

Why it’s important

A delayed effective date means you are selecting a date in the future when your incorporation will be effective. The most common time for business owners to consider a delayed filing is towards the end of a calendar year, with the requested effective date being January 1 (or shortly thereafter) of a new year.

Features & benefits

Following are some potential benefits to choosing a delayed effective date for your filing:

• Simplification of tax filings. If you’re operating your business as a sole proprietorship or general partnership, and you incorporate your business or form an LLC at the end of a calendar year, you will need to report income for your sole proprietorship/general partnership AND report income for the corporation or LLC for that calendar year. This may result in different forms needing to be filed with the IRS and your state.
• No franchise tax. A franchise tax is a tax imposed on companies for the mere privilege of being incorporated or registered to transact business (foreign qualified) in a state. In a number of states, franchise taxes are imposed on corporations and LLCs whether or not the company was actually operating during that time. By incorporating in 2010 but requesting a delayed effective date of January 1, 2011, your company would not incur franchise taxes for 2010 in states that impose franchise taxes on a calendar year basis.
• Avoid backlog of state filings. October through January is the busiest time of year for most states. You might experience delays in state turn-around on incorporation filings. By submitting the incorporation paperwork earlier and requesting a delayed effective date, you can typically ensure your corporation or LLC effectively begins on your desired date.
• Delaying corporate formalities. Corporations are required to undertake certain formalities upon formation, such as creating bylaws, holding an initial (organizational) meeting of directors, holding an initial meeting of shareholders, and issuing stock to the owners (shareholders). With a delayed effective date, the owners and directors of the corporation do not need to undertake these steps until the effective date.

If you have questions on the benefits of a delayed effective date for your particular business situation, please seek the advice of an attorney, accountant or tax adviser.