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.
