Most of the small businesses that we insure are sole proprietors (they use their social security or personal tax ID for the business) but we do get questions whether it's worth changing to a corporation. Here are the advantages & disadvantages:
ADVANTAGES
Limited Liability - A corporation can help protect the owners’ personal belongings (e.g. home, savings, etc) should someone open a lawsuit against the business.
Tax Benefits - With corporations you get more tax flexibility and ability to deduct business expenses.
Ownership Flexibility - With corporations, there is a lot more flexibility in terms of the type of owners and transferring ownership to someone else.
DISADVANTAGES
Extra Expenses - It does take some money to incorporate and every year there are additional costs to maintain the corporation
More Work - Maintaining a corporation does involve extra steps because you have to separate the finances and there are certain tasks that need to be done each year.
Tax Disadvantages - For certain (but not all) types of corporations, you can have double taxation…(1) on the business itself and (2) also the owners.
If you are considering incorporating, I would suggest you talk to your tax professional to see if it's a good fit for you financially and beyond. You can also contact me at (323) 773-4429 and I would be glad to refer you to someone that can guide you in the right direction.
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