Determining the date a business starts is important, not only for tax purposes but also when valuing a company. The date a business begins could be when a website is launched on the Internet. There are other ways to determine when a business started, such as for tax or legal purposes.
Start-up and registration of a business
The date of the registration is usually the official start date for most businesses. Businesses such as corporations, partnerships, and LLCs must be registered with the state. The date that the company becomes effective is typically the date they file with the state. However, a company may choose another date. 1
Most businesses are required to register with the IRS for federal tax purposes and obtain an Employer Identification Number (EIN).. This form asks you to fill in the date that the business was started or ownership changed. The business owner is responsible for deciding the start date. 2
Note:
The majority of businesses begin on the first business day in a given month. Some businesses start at the start of the quarter or the year (January 1, April 1 or July 1), while others choose the first day of the month. The beginning of the month is used for business financial reports ( profit/loss statement and balance sheet ). This makes it easier to prepare these reports.
IRS’s answer to when a company begins is the date the state filed its business registration.
The IRS says “activities” of the corporation, such as purchasing necessary operating assets could be an indication that the business is already up and running. To determine the startup date, the IRS considers each case’s circumstances. 3
Start-up business and fiscal year
The first tax year for a business is the year it was founded. This is what the IRS calls a Fiscal Year. In the future, the business fiscal year may be crucial for transferring business losses to previous years. The year is more important than the date in this case.
You should have filed your tax return if you had business activity in the previous year (either major expenses or clients). This is to determine when you can claim a loss on business taxes for that particular year.
Start-up costs and business start date
When determining whether start-up costs can be deducted, the date of the business’s launch is important. You can claim startup costs on amounts paid or incurred to:
- Create an active business or trade
- Investigating the creation or acquisition a business or trade.
This cost must be paid prior to the start date of your business.
Note:
You can deduct $5,000 in startup costs, and $5,000 for organizational costs during your first year as a business. For more information, see IRS publication 535 – Business expenses.
The concept of going concern
When a new business is launched, the concept of going concern will be in play. A business that expects to remain in business indefinitely is considered a going concern. 6
A business that is still in operation has a customer base and is actively working to increase it. It also makes money through sales. A going concern doesn’t need to make a profit. It only needs to demonstrate the intention to operate in a way that makes a profit.
When a business becomes a “going concern”, that is, when it starts operating independently, with the goal of earning a profit and records are kept, as well as when customers are solicited, you could say it has started.
Bottom Line
The year you started your business is certainly important. Taxes can make it important to choose the year you start your business.
Note:
It’s not as simple as it seems to choose a date for your startup. There are tax and legal implications. Before you choose a date, consult an attorney and CPA.
