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I am changing my business from a sole proprietorship to a corporation. For tax purposes, what would be the official start date of my business?
When an individual incorporates, the individual files articles of incorporation with the secretary of state of the state of incorporation. The secretary of state stamps a "born on" date on the articles of incorporation. For tax purposes, the official start of business is the date the corporation is "born." Let’s say corporation XYZ was born on Dec. 15, 2011. It files taxes on a calendar-year basis, but it does not start customer transactions until Jan. 3, 2012. The corporation has a filing requirement for 2011, although it may not have income or deductions other than for filing fees and state taxes. (Under the federal tax code, you cannot deduct organizational costs immediately. You must amortize them over five years).
A sole proprietor converting his business to a corporation usually will include in the filing papers a statement that his assets (e.g., leases, inventory, receivables) are assigned to the corporation. This usually is a tax-free transfer under Internal Revenue Code section 351.
Individuals using self-help kits to form corporations often skip critical steps in perfecting the corporation. A self-incorporator (i.e., one who incorporates without using an attorney) may find that out at the corporation’s first IRS audit!
G. Scott Haislet, CPA, Esq. is a tax adviser, estate planner and real estate attorney. He can be reached at (925) 283-1031.
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