How Incorporating Can Protect You
Congratulations! You’ve set up shop and opened your own business! Your
entrepreneurial skills are paying off and you are making sales left and right. The cash is flowing
in and the future looks bright. Wait a second though, you are still operating as a Sole Prop? You never incorporated your business? Have you lost sleep at this point wondering if you have exposed yourself to any personal liability? Having a sole proprietorship is a great way to establish your business when you first start out. Over time, you may want to think about the tax implications when you start making more money. A sole proprietorship is a “Pass-through”entity and will not be tax separately on your individual return. You will have to report thisbusiness income on your 1040 and it is taxed at 15.3%.
At Precision Bookkeeping we often get asked, “when is a good time to transition into incorporating my business?” This is a great question and it can depend on several factors. Mainly, how much do you want to save on your taxes, and how much risk you want to personally expose yourself to. It is always a good idea to protect your personal assets from business liability. You never know when a customer would be so dissatisfied as to come after you. There are many insurance options to protect your business against liability, but that will
not protect you from Uncle Sam himself. Yes, the good folks at the IRS will go as far as they can to collect on unpaid taxes. Getting off to the right start will set the foundation that you need to manage your business income and tax filings so that you can run your business and make money (relatively) “worry-free” (self-employment is hard work!) from law-suits and tax liability. Business owners should consider the pros and cons of the different options available to them for incorporation. Business owners have the option to operate as an LLC, LLP, C-Corp, or an S-Corp. If you have questions on any of these incorporation types, the tax implications and benefits of each you can call any of our team members at Precision Bookkeeping Solutions who can consult you on the best approach tailored to your businesses needs.
Margaux Penichet, MBA
Operations Manager/ Precision Bookkeeping Solutions