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How delayed filing can decrease your franchise tax

On Behalf of | Sep 20, 2022 | Business Law |

Choosing when to incorporate your business might have significant tax implications. Many companies are ready to open in December but becoming effective at the end of the year is not always the wisest decision.

Delayed filing is a good option for most small businesses to help get them off on the best foot possible. Continue reading to learn more about delayed filing and how it affects your business.

New franchise tax law helps small businesses

California recently changed its franchise tax law to be more friendly to new businesses. According to Assembly Bill No. 85, corporations do not have to pay the $800 franchise tax in their first taxable year. LLCs and other entities that formed late in the year used to pay $1600 in a short period, but now you do not owe the tax until April 15th after your first year of operation.

Delayed filing affects your franchise tax

This may affect when you decide to establish your effective date. California allows a 90-day delayed filing for your business, meaning if you delay until January of 2023, you do not have to pay the $800 fee until April 15th, 2024. However, if you start your business this year, you must pay the franchise tax on April 15th, 2023. Depending on the size of your business and how soon you plan on achieving profits, the $800 franchise tax could seriously impact getting your business off the ground.

Delayed filing is not worth it for every business and moreover, it might not make sense for your situation. Besides the franchise tax, there are many other considerations. Think about your goals and business plan before deciding if delaying until the following year is the smart choice.