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When Does a New Business Have to Start Filing Income Tax Returns?

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Here's an important business tax preparation question: If you have recently started a business, when are you required to begin filing income tax returns? Let's answer this question by considering a typical example.

Let's say you and your two business partners form an LLC in November 2010. You don't have a profit during the last two months of the year, as you are just laying the foundations, assembling your team of advisors (accountant, attorney, insurance, etc) and doing other preliminary activities. You don't have any sales yet, but you do incur some expenses to get things going.

You do apply for and receive a federal tax identification number (EIN) from the IRS, and you also get a tax ID from your state.

Do you have to file an income tax return for this first year, even though the business was only in existence for the last two months of the year and had no profit?

The answer is "Yes."

Here's why. Since you have an IRS-issued federal tax ID, you are in their system and the IRS will be expecting you to file an income tax return for 2010. Since there are three owners (members), by default the LLC would be taxed as a partnership (assuming that you've haven't chosen to be taxed as a corporation), so the business should file Form 1065 by April 15, 2011, or file an extension on Form 7004. If the LLC files the extension, then the LLC has until Sept 15, 2011 to file Form 1065.

An LLC can also be taxed as a corporation (either a regular corporation or an S Corporation), provided the proper paperwork is filed with the IRS. If that's the case, then the LLC should file Form 1120 or Form 1120S by March 15, 2011, or file an extension on Form 7004, giving the LLC until September 15, 2011 to file the 1120 or 1120S. (Form 1120 is for regular corporations; Form 1120S is for S Corporations.)

Bottom line: even a business with no profit should prepare and file a return. Otherwise, the business could be subject to the late filing penalties, which can add up fast. Returns with no tax are still subject to a late filing penalty of $89 per owner for each month (or part of a month) that a return is filed late. So in the scenario above, a three-member LLC would be fined $267 ($89 x 3) for each month that the return is late, up to a maximum of 12 months.

To be safe, always prepare and file a tax return for any year that the business is in existence, whether or not there was any profit. Otherwise, you could end up paying hundreds or even thousands of dollars in late filing penalties.

{ 12 comments… read them below or add one }

Marina February 24, 2017 at 3:12 pm

As a Sole Prop. I filed to become an LLC with 3 members on December 21 2016, received approval until Jan 09, 2017 then I applied for EIN. Do I have to file tax return for 2016? Do I have to file estimated for 2017?

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Louise February 17, 2017 at 10:40 am

We started up business as corp. with 3 shareholders in Feb, 2016 but no activity until Jan. 2017. What business tax return should I file?

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Alex Kozlov February 6, 2017 at 2:38 am

That is strange because it clearly says on the IRS website that “A domestic partnership must file an information return, UNLESS it neither receives gross income nor pays or incurs any amount treated as a deduction or credit for federal tax purposes.” Is this an honest post or an attempt to make money for filing unnecessary returns?

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Nate Williams January 19, 2017 at 4:42 pm

I formed an LLC and am the only member so far. I want to file an an Entity vs file under my individual and Schedule C. How do I do this?

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John December 13, 2016 at 8:46 pm

The question is if I form a non profit corp in the last two weeks of Dec do I have to file a return for 2016 if:

I did not get funded in 2016

I got funded on 12/31/2016

I got funded on 1/2/2017

Thanks for your help. I have tried to research this but cannot find anything.

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DeJuan December 12, 2016 at 9:41 am

Just started a business by myself, have EIN and tax id, received no income, do i file?

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Toria November 22, 2016 at 10:06 am

I have 3 partners and we formed an llc through legal zoom. We have not filed for an EIN since we have just been laying the foundation for the business modal. We have obviously not made any money . What tax form do we file if any?

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Rahul Barma November 22, 2016 at 3:39 am

We have incorporated a Pvt Ltd company in the year 2014 with all valid documents and other mandatory requisites such as Current account,PAN and since then no business was done . Even we never opted for tax return as there was not a single business transaction took place

Recently one of my friend told me that it is mandatory to close a company which is not in function.

Please let me know is it really needed to close a non functional company as I have read some reviews online where I have seen no functional companies automatically get closed after 5 years .

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Pauline November 17, 2016 at 10:50 am

My single member LLC was incorporated in Delaware and I paid tax to Delaware every year to keep my LLC active. But I never applied EIN. Do I still need to file tax return?

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V.M April 30, 2016 at 9:33 pm

Got my ein no. Been I business 4 mons soul pryter. Where do start do I deduced my pay do I or . lost.

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julia February 16, 2016 at 7:12 pm

how about i just register my business in Nov, 2015, and have not apply the EIN number. do i also need to file the tax return for my business? which form i have to fill out in this situation?

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Gloria March 25, 2015 at 9:38 am

Question I received EIN number but did not start my business, and I don’t have employeess or partners just me and no foundation do I file

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