Do You Need to Incorporate Your Business?
Charlene M. Ives, CPA, PCIf 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?
2. How much money do you expect to make?
If your business is very small, the extra cost of incorporating and corporate compliance may eat up any tax savings. 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 is 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?\"