When Is The Best Time To Incorporate Your Small Business
Below is a MRR and PLR article in category Business -> subcategory Small Business.
When Is the Best Time to Incorporate Your Small Business?
Summary:
If you're a sole proprietor, you might be thinking about incorporating your small business or self-employment activity. But when is the right time to do it?The Best Time to Incorporate
Legal Benefits:
Legally, any time is the right time to incorporate. The sooner you do it, the quicker you transition from unlimited liability to limited liability, offering you more protection.Tax Savings:
From a tax perspective, incorporating sooner means you start saving money faster, keeping more in your pocket and less with the government.Tax Reporting:
However, if we consider tax reporting, the ideal time to incorporate is January 1st.Why January 1st Matters:
If your sole proprietorship (or other entity, like a partnership) is operational as of January 1st and you incorporate later in the year, you might have to file two business income tax returns for that year.Example:
Imagine you've been running your sole proprietorship for a few years. In early 2006, you decide to incorporate. You start the paperwork in January, but due to delays, the incorporation is effective from March 1. For 2006, you'll need to file a Schedule C for January 1 through February 28, and a corporate income tax return for March 1 through December 31.While some might find filing two returns manageable, others may see it as a hassle. The inconvenience may be worth the benefits of incorporating, but it's something to consider.
Future Considerations:
Remember, this dual filing is only required in the year you incorporate. In 2007, you would only need to file the corporate income tax return.If you're thinking of incorporating late in the year, say on November 15, you'll have to file for both time periods that year. Weigh the benefits of incorporating against the simplicity of waiting until January 1st.
Final Thoughts:
Before deciding when to incorporate, think about the tax reporting implications of incorporating on January 1st versus another date. Sometimes, waiting a few weeks might make sense, especially when January 1st is just around the corner.You can find the original non-AI version of this article here: When Is The Best Time To Incorporate Your Small Business .
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