Accounting
What are delayed filings? | Accounting Today
“Timing is everything.” We’ve heard this turn of phrase often in all sorts of scenarios. And if you have clients who are starting a new business or transitioning from a sole proprietorship or partnership to an LLC or corporation, it’s absolutely relevant!
Whether someone incorporates their business now as the year comes to a close or waits until the new year can affect their company in various ways. In this article, I’ll discuss those impacts and explain why some clients might find the option to do a delayed filing attractive.
Business formation timing considerations
First things first, let’s discuss the three timing options business owners have when forming an LLC or corporation — midyear, end of year or January 1 (a.k.a., the start of the new year).
Midyear
Registering a business entity with a midyear effective date means the company will be subject to all the tax and reporting requirements associated with their LLC or corporation for that year. And existing businesses that switch to an LLC or corporation mid-year must submit two sets of income tax returns: one for the business structure it operated as during the months before its incorporation date and another set for the remainder of the year when it operated as an LLC or corporation.
End of year
December is an extremely hectic month for Secretary of State offices across the country, which can create a backlog of filings and potentially result in an effective date a month or more into the new year. Typically, states must receive and process an entity’s registration form before it’s considered effective. So, even if someone requests an effective date in December or on January 1, the actual effective date might be later if the state is unable to process the registration before the requested effective date. In other words, states generally do not make effective dates retroactive.
January 1
A January 1 effective date has some perks. It gives the LLC or corporation a clean start — e.g., existing businesses only have one set of tax forms for the tax year vs. the two required if switching entity types midyear. Also, in states that levy LLC franchise taxes, an LLC that files with an effective date of January 1 would not have to pay those fees for the previous year. For example, if a business files its LLC formation paperwork in November 2024 but requests an effective date in January 2025, the LLC won’t have to pay a state franchise tax for 2024. Likewise, the LLC or corporation’s other corporate formalities kick in for that year rather than for the year before.
How to ensure a January 1 effective date
Typically, a business registration filing will be effective on the date the state processes the forms. The processing time may vary between just a few days to several weeks, with expedited filings completed in five to ten business days.
A delayed filing, however, gives business owners some control over when their corporation or LLC goes into effect. In states that allow delayed effective dates, business owners can submit their formation paperwork in advance and set a future date for when they want their entity to be officially registered. Different states have different rules for when they’ll accept a delayed filing.
For example, here are several states’ requirements for how far in advance business owners may request a delayed effective date:
- Alabama – Up to 90 days before the requested effective date;
- California – Up to 90 days before the requested effective date (note that in California, LLCs and corporations that submit their formation paperwork after December 18 will be considered to be in business effective January 1 the next year, provided they do not conduct business between December 18 and December 31 of the current year);
- Florida – Up to 90 days before the requested effective date;
- Illinois – Up to 60 days before the requested effective date;
- Pennsylvania – Up to 90 days before the requested effective date;
- Rhode Island – Up to 90 days before the requested effective date;
- Texas – Up to 90 days before the requested effective date;
- Virginia – Up to 15 days before the requested effective date.
The below states do NOT allow delayed effective dates:
- Alaska
- Connecticut
- Delaware
- Hawaii
- Idaho
- Louisiana
- Maryland
- Minnesota
- Nevada
- New Jersey
How can your clients request a delayed filing?
As your client or their representative completes the forms to establish their LLC or corporation, they should consider their desired effective date and make sure they submit their delayed filing within the state’s acceptable time frame. For instance, if someone wants to form an LLC in Rhode Island with an effective date of January 1, 2025, they can submit their delayed filing as early as Oct. 2, 2024. The company’s Articles of Organization (LLC) or Articles of Incorporation (corporation) should reflect the desired effective date. If the state doesn’t have a designated field on its form to request an effective date, your client can add a provision to request a specific date (if the state will allow it).
Is a delayed filing for everyone?
Whether a delayed filing makes sense for a client depends on their situation. As we discussed, submitting business formation paperwork before the end of this year to request a January 1 effective date next year can make tax filing time less cumbersome and potentially avoid some extra compliance fees. But sometimes, a delayed filing won’t be the way to go. For example, some consultants or other professionals may not want to wait that far in the future to get their entity up and running because they need an earlier effective date to secure a significant client.
Final thoughts
Delayed filings provide business owners with control over the official registration date of their business entities. By filing business formation ahead of time and requesting a delayed effective date of January 1, business owners may avoid potential paperwork processing backlogs at the state and eliminate extra paperwork at tax filing time. Moreover, it enables entrepreneurs to file their registration forms before the end of the current year for the following year without being on the hook to pay certain fees (like an LLC franchise tax) and submit certain reports (like annual reports) for the year when the registration forms were filed because the entity was not yet effective then.
As with all business concerns with legal and financial ramifications, your clients should seek expert professional guidance when considering whether a delayed filing will be advantageous for them. That’s where your expertise can make a tremendous difference! And for any questions beyond the scope of the matters you’re licensed to address, please direct your clients to the appropriate resources.
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The Internal Revenue Service commemorated the 70th anniversary of the April 15 tax filing deadline on Tuesday, but this year the agency has also been suffering through
The IRS noted on Tuesday that the tax-filing deadline moved from March 15 to April 15 in 1955 to give taxpayers and the IRS more time to prepare and process complex tax returns. However, with the budget cuts and the efforts of the Elon Musk-led Department of Government Efficiency, the IRS has also paused its technology modernization efforts.
IRS chief information officer Rajiv Uppal is reportedly the latest high-level official to announce his resignation, according to
Acting chief counsel William Paul was reportedly
The high-profile departures come after the approximately 7,000 IRS probationary employees were put on paid administrative leave this year, with plans to cut up to 50% of the IRS workforce after tax season. The National Treasury Employees Union has been warning of the impact of the cutbacks.
“NTEU is incredibly proud of the IRS employees who persevered despite attacks on their jobs and their agency and helped deliver a smooth filing season for millions of taxpayers and business owners,” said the NTEU’s national president, Doreen Greenwald, in a statement. “But the success feels precarious as the administration plans a forthcoming firing spree that will cripple the agency’s ability to serve the American people, before, during and after the filing season.”
The NTEU noted that the Trump administration has already removed about 7,000 probationary IRS workers, and the Treasury has announced plans for a broader reduction in force that could impact thousands more IRS employees across the country.
“It is not speculation to say that a gutted IRS helps fewer taxpayers file their returns, slows their refunds, and allows tax cheats to thrive, because we saw all three of those things the last time Congress
The smaller the IRS workforce, the less tax revenue is collected, according to a
Inside the shaky state of the IRS
The Urban-Brookings Tax Policy Center held a webinar Tuesday to discuss how the large reductions in the IRS’s funding and staffing would affect taxpayers, as well as the successive buyout offers under the
“What we do know before we get into potential future layoffs is that 11,000 IRS employees out of about 100,000 had initially taken the buyout or been laid off in February, and now another 20,000 we’ve been told this morning are taking another buyout, so a total reduction so far of 30,000 employees out of 100,000,” said Tracy Gordon, vice president for tax policy, codirector and acting Robert C. Pozen Director at the Urban-Brookings Tax Policy Center, citing recent articles from
Barry Johnson, a former chief data and analytics officer at the IRS who is now a nonresident fellow at the tax policy center, discussed the advances that the IRS had been making in its technology efforts before the cutbacks. They included:
- Introducing interactive chatbots that used artificial intelligence to interpret taxpayer questions and link them to the appropriate content on its website;
- Expanding online account capabilities for individuals, businesses and tax professionals;
- Introducing the Direct File system for free online tax filing; and,
- Improving the IS’s enterprise case management system.
“One of the big goals we were working on was to make our data more interoperable and accessible to support modernization, while greatly improving the security of all of our data systems,” said Johnson. “We were making progress in releasing statistics in closer to real time and to automate some of our statistical processes. And we were laying the groundwork to support evidence-based policy-making and program evaluation at all levels of government — again, while ensuring the protection of individually identifiable tax data.”
Much of the extra funding for IRS enforcement, taxpayer service and IT modernization has already been cut by Congress or is in the process of being zeroed out, but the plans are unclear.
“There are many unknowns for personnel, for funding, which according to your charts, may actually be close to zero for modernization right now,” said Pete Sepp, president of the National Taxpayers Union. “The [Inflation Reduction Act] funds may have run out by about out for modernization, and we have zero in appropriations. How in the world is anything going to press forward in that environment? Maybe it can, but we want to see the plan.”
Technology can only go so far in helping taxpayers navigate the IRS.
“What we don’t see now is what’s going to be happening going forward,” said Nina Olson, executive director of the Center for Taxpayer Rights and a former National Taxpayer Advocate at the IRS. “How do they propose to improve taxpayer service? Are they going to use AI to eliminate calls? Everybody’s been trying to eliminate the calls since the phone system was set up, and all it does is increase. Maybe you can eliminate some of the repeat callers, the more that you do chatbots and things. But as I keep saying to people, the IRS isn’t like Amazon or your bank. It has enforcement powers that no bank has. And if you’ve ever tried to get a problem resolved with Amazon or any one of these online deliveries, good luck with that. The chat system doesn’t really work really well, and that’s what drives people to the phones. They want to hear from somebody that their issue has been resolved.”
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