When you form a corporation or a limited liability company, the date your entity is born or when it effectively starts, is known as the “filing date”. This date is usually assigned by the state agency that processes filings. However, many states also allow you to choose an effective date for your entity.
01 Why does the filing date matter?
The effective date that your entity was formed is important for several reasons. Because an entity is recognized as a legal person (see Is a corporation a person?), it must have a start date. This date often determines when the entity’s state annual reporting is due. The effective filing date can also be the starting point for the entity’s first tax year with the IRS. So, the filing date will have consequences to the entity’s, and therefore the owners’, taxes and/or the fees it pays.
02 You cannot live in the past ?
Although many of us wish we could turn back the clocks, especially when it comes to business, but alas you cannot do this for a new Corporation or LLC. All state statutes and therefore state agencies do not let you choose a date in the past as your entity’s effective filing date. Your only choice is to take the date they give you or look to the future.
Tax Idea – If the entity’s founders spent money on behalf of the entity before the entity was formed, the entity can reimburse the founders and then write off those expenses, even though they were spent before the filing date.
03 Looking to the future ?
If your entity intends to begin a business or a project in the future, there may be good reason to set a future effective date. Additionally, because many state taxes are based on the effective filing date (examples include California & Florida), it may make sense to set a date in the future.
Before you spool up your time machine, consider the states that statutorily allow you to set a future effective date for your entity, typically limit you to a maximum of no more than 90 days into the future, from date received.
If you wanted your entity to start at some date further into the future, you would need to wait to submit your filing until that date, or in states that allow it, within the future effective time period.
04 Accepting the date you are dealt ?
If there is no benefit to establishing a date in the future, assuming this is an option, let the state establish your filing date. This is often the date the filing is officially received by the state (i.e. Arizona, California, Florida, and others), but sometimes it is the date when the filing is completed (i.e. Maryland, New York, Pennsylvania, Texas, and others). With this in mind, timing here can be an issue as well.
For Example, let’s say you were going to file an LLC in a state like California, which assigns an effective filing date as of the date your filing was received. Considering California Secretary of State is currently taking over two months to complete even the more expedited “in person” filings (see California Filing Status), and requisite $800 franchise tax due four months after the filing date, when you submit your filing will have expensive consequences.
For all these reasons, you should consider what the filing date means to your new entity before submitting your filing to the state.