If your business is a sole proprietorship, you may be asking yourself if you should incorporate your business. Perhaps you’re thinking of doing so before year end so that you can start the new year as a corporation. Before making this decision, here are some benefits to consider in favor of incorporating.
1. Personal Asset Protection. Forming either a corporation or an LLC is similar to a partnership, minus the need for excessive paperwork and fees. It allows the business owner to separate and protect their personal assets in case of a lawsuit or claims against a business entity. In an effectively managed and structured company, owners should have limited liability for outstanding business debts and obligations. This remains as one of the leading benefits to incorporating.
2. Enhanced Credibility. A close second to personal asset protection, a major benefit of incorporating your business is the stamp of approval adding an “Inc.” or “LLC” after your business name gives. This distinction affords your business with the instant credibility and authority associated with owning an incorporated company. Potential consumers, vendors and partners may prefer to do business with an incorporated company and will look overlook those who are not.
3. Brand Protection. In most states, other businesses may not file your exact corporate or LLC name in the same state. From a branding standpoint, this not only helps protect your company’s reputation from being diminished by or confused with another company bearing a similar sounding name, but strengthens your businesses in terms of brand identity and marketing efforts.
4. Perpetual Existence. Corporations and LLCs continue to exist throughout ownership or management changes within your business. Sole proprietorships and partnerships simply end if an owner dies or leaves the business. Forming a corporation ensures that your company’s legacy can be preserved, as well as continue to provide employment and services for clients should any changes in ownership take place.
5. Tax Flexibility and Incorporation Tax Benefits. There are several tax advantages and benefits of incorporating a small business. While profit and loss typically “pass-through” an LLC and get reported on the personal income tax returns of owners, an LLC can also elect to be taxed as a corporation. Likewise, a corporation can avoid double taxation of corporate profits and dividends by electing Subchapter S tax status.
6.<strong> Deductible Expenses. Corporations and LLCs may deduct normal business expenses, including salaries, before they allocate income to owners. This means that the money you put towards growing your business can be deducted from your business income in determining your actual taxable income.
The decision to incorporate is an important step in the life of a business. Carefully consider your options, weigh the advantages and disadvantages of incorporating a small business, and further explore some of the added benefits of incorporation. Please contact us at http://www.LStortzCPA.com for more information.
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