The one question our tax consultants hear most often from small business owners is “When is it the right time for me to incorporate my business?”
The truth is, the answer to that question is different for everybody.
Choosing the right entity type for your business can be a tricky process and lead to serious tax, liability, and estate planning consequences. The entity type you choose is dependent on a number of factors including: whether or not you’re self-employed, the amount of time you’ve been self-employed, business profitability, and cash flow. For these varying reasons, it’s best practice to sit down with your local tax advisor so they can take a closer look at your tax return.
That being said, here’s a brief overview of what incorporating can do for your business:
What’s the Benefit of Incorporating?
There’s many reasons business owners decide to incorporate their business: credibility, name protection, and perpetual existence are just a few.
There’s a common misconception that incorporating your business will automatically save you tax. That’s not the case. In fact, the only entity that can actually save somebody income tax is the S-corporation, which can potentially reduce an individual’s self-employment tax anywhere from forty to upwards of sixty-plus percent.
The main benefit of incorporating your business is for asset protection, not the tax benefit. Incorporating your business gives you greater liability protection for your business because it separates your business from your personal assets. This means business owners are protected from corporate debt and obligations should business falter.
Why do I Need A Tax Advisor to Incorporate My Business?
Unlike other things that you do in life, when you file legal documents with the federal government, if you don’t cross your T’s and dot your I’s, there are civil penalties involved.
You’d be surprised how many individuals incorrectly file their business’s incorporation, leading to legal issues and exorbitant fees from the IRS. By sitting down with a trusted tax advisor, like Robert Hall Associates, we handle the hard stuff for you.
First and foremost, your tax consultant will make sure everything is filed correctly with the state and federal government, so that when you to file your first tax return under the entity, you’re not hit with underpayment, late filing, or incorrect information penalties by the IRS. This saves your business valuable time and hard-earned money. Then, your tax consultant will figure out how to maximize your tax benefit under the entity.
Incorporating your business and making sure you’re getting the best tax benefit possible can be a confusing process. If you are considering incorporating your business, it is best to seek the advice of a professional.
With a background in finance and tax services, Robert Hall & Associates can file the necessary paperwork to incorporate your business, and help you take advantage of the built-in tax benefits for your chosen structure. Call us today at (818) 242-4888 or schedule your free 30-minute consult now.
Unsure which entity is right for your business? Compare the Benefits of LLCs, S Corps, and C Corps here.
Hiring a professional to file your corporate taxes? Learn what your tax professional needs from you in order to file your taxes.
Registering and incorporating your small business in California? Find out what state-specific laws and regulations you need to keep in mind.