Why Incorporate Your Business

Why Incorporate Your Business

Why Incorporate Your BusinessWhy Incorporate Your Business; the number one reason is if you are operating your business as a sole proprietors, there’s no separation between yourself and the business. Many small business owners decide to incorporate to protect their personal assets from business liabilities. If there is a lawsuit or other legal claim against your business, being incorporated can protect you from losing your personal assets. Only the business can be held responsible in such cases, making sure you are never at risk of losing your car or home.

Establish Business Credit. Doing business as (DBA) or as a sole proprietor, when you apply for credit or a business loan for your business, everything is dependent on your personal credit score and assets. With a corporation over time your company can begin to establish credit in the name of the business.

Potential Tax Benefits by incorporating can also provide tax advantages In addition to regular federal and state income taxes for example as a sole proprietor, you also get hit with self-employment taxes. With your corporation you’ll only have to pay self-employment taxes on the wages or salary paid to you by your company. The money that’s left in the business account or distributed to shareholders as a dividend, isn’t subject to income tax. An additional note as a sole proprietor per the IRS, after three years you have to show a profit to avoid being red flagged for an audit. Compared to an LLC needing to show profit after seven years, and a C/S corporation requiring to show profit after 15 years.