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Should I Incorporate My Business?

There comes a point when everyone running a business, whether a one-person professional consulting service or an Internet-based store, asks the question, "should I incorporate my business?"

First, you'll want to take a look at the size of your business and assets. To get started, answer these yes/no questions:

  • Are you a Mom & Pop operation with no employees?
  • Do you operate out of your home?
  • Is your income relatively low?
  • Are your personal assets of relatively low value?

If you answered NO to even one of the above, you should definitely consider forming a corporation for your business.

When you incorporate your business, you will almost surely benefit in two main areas: liability and taxes.

Form a corporation to protect your personal assets

Almost always, limiting liability is reason enough for business owners with even modest personal assets, such as a house and a car, to form a corporation for their business. Without the limited liability protection of incorporation, an owner's personal assets can be taken to satisfy unfulfilled obligations of the business. Unpaid loans and bills, unfulfilled contracts and guarantees, broken leases, and even judgments stemming from legal action against the business are just some of the obligations for which a business owner could be held liable.

A corporation will probably reduce income taxes, but even without that benefit, the trouble and expense to form and then maintain a corporation is a small price to pay to protect one's personal assets.

Form a corporation to help reduce your taxes

Tax issues are a major consideration. With any significant income, operating your business as a corporation will probably allow you to reduce your tax burden.

Once you've decided it's time to incorporate your business, you should then consider whether S corporation election, or maybe even forming a Limited Liability Company (LLC), would serve your needs better than a regular C corporation.

The type and size of the business, the state or states of operation, the number of owners and their relationship to the business and each other, the personal finances of each of the owners and their families, plus other questions related to the specific situation must be taken into account in order to identify which of the possible business entities will be most beneficial.

You'll find a wealth of information on the different types of business entities, from C and S corporations to LLCs and their relative advantages in the MaxFilings Online Incorporation Knowledge Center.

Conclusion: So, should I incorporate?

As you can see, the answer is "it depends". Examining all of the unique variables of your situation alongside the latest federal, state and municipality tax laws is an exercise that calls for the help of a qualified accountant, tax advisor or financial planner. Not only are tax laws ever changing and complex, they are subject to interpretation and the average layman will be quickly lost.

If you have decided it's time to form your corporation or Limited Liability Company (LLC), MaxFilings can help you do so quickly, easily, and economically. Just start entering your information now and save it for when you're ready. You're under no obligation, and there is no charge until you actually place your order.

Following are some articles that may help in deciding between a C corporation, S corporation, and an LLC.

Can S Corporation status reduce self-employment taxes?

Is pass-through tax treatment the same for LLC's & S Corporations?

What is phantom income?