In this transcript from a video by Gale&Vallance, Andy Gale, an incorporation attorney at Gale & Vallance in Orange County, explains when to incorporate in California and why timing your incorporation date can have major tax and compliance consequences. Using a real-world example, the video breaks down federal and California rules, highlights the California $800 franchise tax, and explains the often-misunderstood California 15-day incorporation rule.

This discussion is intended for educational purposes only and does not constitute legal advice. Every situation is different, and we strongly recommend consulting a qualified attorney about your specific circumstances before forming or timing a California corporation.

 

Transcript

Introduction: Timing Your Incorporation

00:00:00:00 – 00:00:18:18

All right.

For so many entrepreneurs,
the end of the year is just this mad
dash to the finish line, right?

You’re trying to get
your new business off the ground.

But what if I told you that
just waiting a couple of weeks
could save you 800 bucks
and a whole lot of paperwork?

It all comes down to one single thing.
The exact day you decide to incorporate.

Can Waiting Two Weeks Really Save $800?

00:00:19:03 – 00:00:36:09

I know it sounds a little too
good to be true.

How could a simple two week
delay possibly
save you $800
and let you skip
an entire state tax return?

Well,
if you’re forming
a corporation in California,
the answer is a big yes.

But you got to know the catch.

Meet Maya: A Real-World Scenario

00:00:36:09 – 00:00:54:18

So to make this real,
let’s talk about Maya.

She’s a therapist out in L.A.,
and she’s ready
to incorporate her practice.

It’s late November, and she’s
staring down this exact problem.

Does she file her paperwork now,
or does she wait?

This decision is going to affect her
wallet and her stress levels
for the next year.

Federal vs. State Rules

00:00:54:18 – 00:01:29:22

To really get what Maya’s up against.
We have to look at two different
sets of rules federal and state.

And we’re going to start
with the big one.
The IRS.

Their rule is simple,
and honestly, it’s
totally non-negotiable.

The federal law is actually
crystal clear.

If your corporation legally exists,
you have to file a tax return.
That’s it.

It doesn’t matter
if it existed for 365 days
or just for one day.

It doesn’t matter
if you made a million bucks or zero.

If you are officially a corporation,
the IRS expects to hear from you.

California’s $800 Franchise Tax

00:01:29:22 – 00:02:06:17

But now let’s talk about California
because this is where things
get a little more interesting.

California has its own rules.

And there’s a very specific price
tag that new businesses
need to know about.

And this is the number
that this whole story revolves
around $800.

That’s California’s
annual minimum franchise tax.

Think of it as a fee
you pay just for the privilege
of having a corporation in the state.

The California 15-Day Rule

00:02:19:19 – 00:02:54:22

And that brings us to the plot
twist in all of this.

The California 15-day rule.

This is a special little provision
from the state’s Franchise Tax Board.

You must form within the last 15 days
of the tax year and conduct
no business activity at all.

If both conditions are met,
there is no California tax return
and no $800 franchise tax
for that short year.

What “No Business Activity” Means

00:03:10:09 – 00:03:38:16

You can do the setup work,
but no contracts, no billing clients,
and no using a company bank account.

You build the car,
but leave it parked
until January 1st.

The IRS Catch

00:03:38:16 – 00:04:14:10

The IRS does not care
about California’s 15-day rule.

If the corporation exists,
you must file a federal return,
even if it has zero income.

Three Incorporation Options

00:04:14:10 – 00:04:56:11

File early December: federal and California returns.

Wait until January: simplest option.

File late December using the 15-day rule:
federal return required, California return avoided.

Maya’s Final Decision

00:04:56:11 – 00:05:24:15

Maya incorporated on December 18th,
kept the corporation dormant,
skipped the $800 California tax,
and filed a zero-income federal return.

Conclusion: When to Incorporate in California

Understanding when to incorporate in California can save new business owners hundreds of dollars and prevent unnecessary filings. As this video explains, California and federal rules do not always align, and strategic timing—especially near year-end—can make a meaningful difference. Before choosing an incorporation date, it is critical to understand both state and federal requirements and to seek professional legal guidance tailored to your specific situation.