by Stephanie
Hetu
http://www.LLC-Explained.com
© 2006
The tax advantages of incorporating a business
is one of the main reasons that owners choose to incorporate their businesses,
no matter what market they work in. Other types of businesses, such as sole proprietorships,
are not afforded nearly as many tax advantages as an incorporation.
A
move called income shifting is one that helps the business, and its owners, immensely.
This is a method in which the total income of your corporation is divided among
its members. How does this help, you might wonder? By shifting the income to a
number of individuals, the overall tax that is required to be paid on it can be
significantly lower, which is a great tax advantages of incorporating a business.
Being able to offer a greater amount of fringe benefits
also factors into the tax advantages of incorporating a business. This is from
the fact that other types of businesses don't get as much of a tax deduction on
such things as medical and retirement plans. In some cases, you can get a full
exemption as long as you choose the proper plans.
Another
tax advantages of incorporating a business is that of making your business a completely
separate entity. This saves you from liability with your personal assets in case
your business gets in trouble, as well as allowing you to structure your business
to take advantage of your business income and lower tax rate. There are also many
deductibles that you simply don't get when you have a sole proprietorship or partnership.
While
you don't want it to happen, business losses can occur. With an incorporation,
you are entitled to an unlimited about of business losses, as opposed to the very
stringent requirements for other structures of business. These are the main tax
advantages of incorporating a business, and ones that you will want to keep in
mind when deciding whether or not you want to incorporate your business.
Income
delegation is another great aspect of incorporation. You can state when you receive
income yourself, as opposed to income towards your business. This is a great way
of keeping your income tax for both your personal and business selves down low,
and is a huge reason to incorporating for small business.
You
can also receive a small business tax deduction. This comes from incorporating
for small business, and is 16% on your first $200,000 in profit, which may or
may not be lower than what you are paying from your personal income taxes. It
is definitely something that should be looked into, however.
