The Date When a Business Actually Starts
Determining when a business actually starts can be an important concept, both in taxes and in business valuation. It might be best to say that a business "starts" when it first starts advertising and is ready to serve customers, as a business can start when it begins advertising, even though no sales have been made. So, taking a company website live on the Internet can be the date when that business starts. For a corporation, certainly the date of incorporation can be the date the corporation starts, but what if customers have been in talks with company management before this date?
Business Startup and Fiscal Year
The year in which the business starts is the first tax year of the business. That can be important in the future for purposes of moving business losses into previous years. In this case, the actual date isn't as important as the year.
If I had had business activity last year (major expenses or a client), I should have filed a tax return for that year, just to establish the start date to take a business tax loss for that year.
Business Start Date and Startup Costs
The date a business starts can be important when considering whether startup costs are deductible. The IRS says you can deduct startup costs for
...amounts paid or incurred for: (a) creating an active trade or business; or (b) investigating the creation or acquisition of an active trade or business.
What the IRS Says about When a Business Begins
The IRS has a sort-of definitive answer about when a business begins, but it waffles a little too. In this article, it discusses the corporation as a specific business entity:
Ordinarily, a corporation begins business when it starts the business operations for which it was organized;... on the date of its incorporation. Mere organizational activities, such as the obtaining of the corporate charter, are not alone sufficient to show the beginning of business.
But the IRS also says that "activities of the corporation," for example, buying necessary operating assets, might be a sign that the business has begun. I
The Concept of Going Concern
The concept of going concern comes into play to determine when a business starts. A going concern has an active customer base, is working on advertising, marketing, and other means to gain more customers, and is taking in money from sales. A going concern does not need to be making a profit, but only to show the intent to operate so as to make a profit.
You could say a business starts when it becomes a going concern; that is when it begins operating independently with the purpose of making a profit, with business records being kept, and customers being solicited.
Certainly, the year in which you start your business is important. If you are considering starting a business and you have business activity in one year going forward into another year, you should consult with your tax professional about which year to use for starting the business. If all of your startup activity is within one year, the date isn't much of an issue.
Disclaimer: Remember, I'm not a CPA or an attorney, and this information is just general and isn't intended to be tax or legal advice. Consult with both your tax and legal advisors before making business decisions.