Why the New Year Is the Best Time to Start a Home-Based Business

In 2020, the COVID-19 pandemic sparked upward trends both in remote work arrangements and the number of startups registering in the United States. As individuals increasingly turn to entrepreneurship as a source of income in uncertain economic times, 2021 could be a record year for business formations in the United States.

Historically, the beginning of the year has always been a great time to start a new LLC. Whether you’re a new or seasoned entrepreneur, this article will discuss the benefits — and logistics — of starting a new venture at the beginning of the year. We’ll also connect you with resources to start your business from your own home.

Beating the Bureaucracy at the End of the Year

Most entrepreneurs know there’s paperwork involved to form their LLC. Starting a business is exciting, but don’t skimp on your homework here. Taking the right approach will save you lots of time and money down the road.

The exact steps vary in each state and your unique situation. However, every business will generally go through a few key steps:

  • File articles of organization with the secretary of state to create your company and establish its name
  • Appoint a registered agent to protect your privacy and avoid receiving legal documents at home or in front of clients
  • File with the IRS to obtain an EIN for your new business
  • Establish organizational record, such as your LLC operating agreement
  • Apply for any state or local tax accounts or licenses needed to do business

At the beginning of the year, new businesses face yet another factor: delayed processing times. With so many people rushing to start their new LLC in the new year, state agencies end up with mountains of paperwork on their desks. Offices that normally take a few days to approve business filings often take weeks until their staff catches up.

For many entrepreneurs, the secret is to file in the last few weeks of the year, but to declare what is called a “future effective date.” This simply means that the state receives your business filing and processes it now, but the company won’t exist until the date you choose. By doing so, you beat the rush of paperwork and get your business up and running faster. Think of it like making a restaurant reservation, but with even more benefits! The only caveat is that a small handful of states do not allow businesses to choose a future effective date. If that applies to your state, you just may need to wait until January.

Tax Benefits of Forming a Home Business at the End of the Year

This time of year, many entrepreneurs will tell you they prefer starting their business with a “clean slate.” By this, they simply mean that a January or even February start date makes business bookkeeping easier. It can also result in conveniences and deductions when filing business and personal income tax returns.

In general, businesses (and their owners) must report profits and losses on the tax return for the year in which that activity took place. By declaring a start date in the new year, the business is not required to file its first federal income tax return until the following year. At the same time, the business owner still may be able to deduct startup costs from the previous year.

Those startup costs may include state filing fees and other legal or accounting expenses. If you are starting a business from your home office, you likely have other expenses, such as equipment, software, utilities, and supplies. You may have even dedicated a room or portion of your home (or rental) to doing business. Depending on your situation, you may be eligible for additional deductions on these home office expenses. Note, these deductions only apply to the self-employed. Employees working from home during the pandemic generally don’t qualify.

One additional benefit of starting a business in the new year is simplified compliance obligations with the states where you have registered to do business. Once the LLC is formed, most states require that it file a secretary of state annual report to stay in good standing. Usually, the first annual report is due in the calendar year following the date of formation. By forming in January, the business can defer its first report and associated filing fee to the following year. For businesses that form and register in multiple states, the benefits of waiting tend to add up.

Charting a Course of Action

Whether it’s your New Year’s resolution, a way to create another stream of income, or a way to occupy your newfound free time, starting a business from your home is an exciting venture. By now, you should realize there are plenty of advantages to starting your business at the end of the year. Of course, every business is unique, and the date you choose to start has important legal and tax considerations. We encourage you to do your research proactively. Before you act, speak with an attorney or tax professional for guidance on your specific situation. Together, they will help you launch your business and start 2021 on the right foot.

Harbor Compliance does not provide tax, financial, or legal advice. Use of our services does not create an attorney-client relationship. Harbor Compliance is not acting as your attorney and does not review information you provide to us for legal accuracy or sufficiency.

The post Why the New Year Is the Best Time to Start a Home-Based Business appeared first on Home Business Magazine.

Original source: https://homebusinessmag.com/management/legalese/new-year-best-time-start-home-based-business/

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