Do You Need to Incorporate Your Business?
Charlene M. Ives, CPA, PC
If you have started your own business, it is likely that you have received bits of advice here and there about incorporating your business, and you may be confused about the array of choices. Here is a short questionnaire that may help your decision:1. Is there risk associated with your business?
A Corporation or Limited Liability Company (LLC) provides you and your personal assets, and your business. In contrast,business under your own or a trade name, you are "self-employed", assets are generally at risk if you are sued over business matters. such as a corporation or LLC is not an absolute protection because risk is they are negligent or engaged in fraud, however, the corporate cases a valid shield between you and your personal assets.
2. How much money do you expect to make?
If your business is very small, for example, under $20,000 net profit, the extra cost of incorporating and corporate compliance may eat up any tax savings from incorporating. For example, certain S Corporation owner-employees may be able to take a reasonable salary from the corporation, and still have net income left over, thereby saving some self employment social security tax on the net income. However, this saving may be lost due to the cost of complying as an S-corporation, unless your business size justifies the change.
3. Does your business need a corporate name?
Sometimes, especially for professionals in business, there is a distinction and image that comes with a corporate or other type of company name. Sometimes it?s justifiable to incorporate because you need the professional image!
Conclusion: In the simplest scenario, there are three reasons to incorporate or form an LLC or other business entity: For personal asset protection, to save taxes, and/or for enhanced professionalism or marketing image.
For further information on choice of business entities, check the article called "What is the best form of business for my company?" If this firm can assist you with incorporating your business,contact us for answers to questions and a rate schedule.
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