Sole Proprietors: There is no Better Time to Change
MADISON, WI - October 24, 2006 - Although it may be too late for sole proprietors to gain the tax advantages of forming an LLC or corporation in 2006, it’s not too early to begin adopting these changes for 2007.
Converting a sole proprietorship to an LLC or corporation provides tax advantages and personal liability protection to a company’s owners. Switching a sole proprietorship to a corporation, for example, may qualify a business for a Small Business Tax Deduction with an annual tax credit of 16% on the first $200,000 of taxable income; can result in self-employment tax savings; and may provide a number of other income and tax advantages.
"When converting a sole proprietorship to an LLC or corporation, timing is a consideration," said Troy Janisch, marketing director for BizFilings. “If you change your entity at the very end or very beginning of a new year, you can simplify reporting by putting all or most of the income and expenses on one return for the entity in existence for most of the year.”
Otherwise, when you set up a new entity, he said you need multiple returns in the same calendar year--one for the sole proprietorship and a second one for the new entity.
For example, a business owner operating a sole proprietorship in 2006 that chooses to convert his or her business to a corporation during the last week of the year does not receive any income or pay any expenses for the corporation in that final week. All of the income and expenses of the sole proprietorship are reported on the owner’s Schedule C for 2006; the corporation’s return for its short tax year (of one week) has no entries.
A popular reason for forming new entities after January 1 of a new year is to avoid state reporting or franchise fees for the current year, especially when the new entity is inactive. There are usually no tax consequences upon transforming a business from a sole proprietorship to an LLC or corporation. The changeover is essentially a tax-free reorganization. You contribute assets of the sole proprietorship to the new entity in exchange for an ownership interest in the LLC or corporation. Tax attributes of those assets also carryover.
October through January are THE busiest months of the year for state filing offices. That is why individuals forming a corporation or LLC during this time often experience excessive delays.
To help business owners minimize delays and reorganize their business structure for the upcoming year, BizFilings offers a “delayed filing” service to customers placing an order by phone at (800) 981-7183. Under this option, BizFilings processes the order in 2006 and puts it in a queue for filing with the state on or after January 1, 2007.
About BizFilings
BizFilings (www.bizfilings.com) is the leading Internet provider of incorporation and related services to business owners. BizFilings professionally forms corporations, LLCs, and nonprofits faster than anyone else. The company also offers Ultimate Business Planner software to help new businesses succeed.
As a company started in 1996 by entrepreneurs seeking online resources to start a business of their own, BizFilings embraces the entrepreneurial spirit. The company has grown rapidly in the past decade, helping over 150,000 domestic and international business owners with their corporation, limited liability company, and nonprofit formation needs. The company is headquartered in Madison, WI, with satellite operations around the country.
BizFilings is a part of Wolters Kluwer, a leading multinational publisher and information services company. Wolters Kluwer has annual revenues (2005) of €3.4 billion, employs approximately 18,400 people worldwide and maintains operations across Europe, North America and Asia Pacific.
Contact:
Troy Janisch
BizFilings
1 608-827-5300, x230