When making a short-barreled rifle via a Form 1, you must specify the minimum length of the barrel and of the rifle. Once the form is filed, this length is difficult to amend, and can be downright impossible once the rifle has been transferred to a new owner. Thus it is critical to get this length right the first time.
What is the right length for your gun? That depends on what you want to use it for. However, that is a different question than what is the right length to record on the Form 1. As noted earlier, this is a minimum length. The rifle, overall and / or the barrel, can be longer than the minimum length, but it can never be shorter. For this reason it is normally best to record on the Form 1 the absolute minimum possible length at which the rifle can function.
It is worth noting that unlike with a conventional rifle, on a SBR the overall length is measured with the stock collapsed to its minimum length. On many AR-15s and other modern rifles, collapsible stocks are the norm, and several inches of rifle length can be lost by collapsing the stock.
A reputable manufacturer of NFA firearms will know these subtleties and manufacture the rifle accordingly. When in doubt, it is always best to deal with someone well versed in the laws and regulations of NFA firearms. Should you choose to make your own NFA firearm via a Form 1, remember that a Trust can be the manufacturer, and list the shortest possible length you may wish to make.