Incorporating for the New Year
As we enter the last two months of the year, in addition to visions of sugarplums, some of us have visions of either incorporating a new or existing business, or dissolving an old one. Here's some handy timing information on incorporating in California. In my next post, I will provide some timing hints for dissolving corporations in California.
INCORPORATION FOR JANUARY 1, 2009
All corporations in California are charged a minimum annual franchise tax. This is like an income tax, and is credited against your corporation's California income tax - but you have to pay it whether you make money or not. In fact you have to pay it even if you're not doing any business at all. Most corporations don't have to pay this minimum in their first year, but then all corporations pay it thereafter.
If you incorporate this month or in early December in order to have all of your ducks in a row and be ready to hit the ground running, then these couple of weeks count as your first year, regardless of whether you do any business or even open a bank account. If you're starting a small business where this money is important, why waste your "free" year on 2 months or just a couple of weeks.
There is a work-around. If you incorporate during the final 15 days of your tax year (and assuming you're using a calendar year) you can incorporate in the second part of December, and use those final two weeks to get your paperwork ready.
Remember, it's during the last 15 days, not after the 15th. So you have to incorporate on the 16th or later.
If you've already incorporated and really don't want to use up your "first year" there is a work around. The rule is you don't have to pay if you incorporate during the last 15 days or the company's fiscal year. So if you've not chosen a fiscal year, just move it up so your incorporation is within 15 days of the start. But remember your California and Federal tax years must match.
And to everyone who is incorporating (whether it's an existing business or a new one) Good Luck!
