Bookkeeping

Starting LLC in the middle of a year

Hi,

I’m looking to start my business in the beginning of the year, how will this affect my taxes. Or, should I apply for the LLC but don’t start my business until the beginning of next year?

in progress 2 Answer

Answer

  1. 74 Answers

    Hi, there are a few tax decisions to be made with forming an LLC. If you are a single-member LLC you can elect to be taxed as a corporation or add the business income and expenses to your personal tax return on a Schedule C. If you do not plan to have any activity in 2019 you would need to file a zero return as the business is considered an active business when the LLC formation takes place. In order to avoid the added burden of filing a zero return, you can wait until 2020 when you know you’ll have activity and form the LLC at that time.

  2. 29 Answers

    Ideally, the best time to form an LLC is BEFORE you open for business. If you have not started your business yet, you should consider this option very carefully. Forming an LLC from Day 1 will avoid the need to make this transformation as your business is growing. (If your business were already up and running, then it may be smart to wait until January 1st to make the transition to an LLC. Otherwise, you will be required to file two separate tax reports, one as a sole proprietor or partnership and one as an LLC. Since it can take a few months to complete the LLC formation process, the government allows what is referred to as “delayed filing.” With delayed filing, you can start the LLC formation process months in advance, but request the incorporation date to be set for January 1st of the following year.)

    There are, however, times when waiting until January 1st is not recommended. If you are in a high liability industry, if you are worried about your personal liability associated with your business or if forming an LLC offers significant tax benefits, then forming an LLC as soon as possible may be the best solution for you.

    No matter when you decide to form an LLC, unless you’re familiar with preparing the LLC formation documents, it’s recommended you seek out professional assistance to complete the necessary forms. This will ensure everything is completed properly without any unnecessary delays or fines.

    If you have no activity, and you open your file the necessary LLC forms, there will be no tax impact for 2020.

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