What You Need To Know About Incorporating Your Business
by Diane Hughes © 2003
Most US-based small businesses are getting eaten alive in taxes!
That statement has proven itself true over and over again. However,
while small business owners want to save money, many are literally
afraid of incorporating their companies. The paperwork, the additional
reports, having a set payroll amount each month, and other visions
swirl around their heads. Those visions could be costing you a
ton!
Let me take a few minutes to explain what you need to know about
incorporating your business. While it certainly isn't a move every
business will want to make, there are definitely some large benefits
associated with incorporation.
MYTH Incorporating means I can't take money whenever I want
it.
TRUTH Yes you can! This is a MYTH that holds a lot of small
business owners back from incorporating. If you set a payroll
amount for yourself, then decide you want/need more money, you
simply write yourself another check and call it an "owner distribution"
or a "draw."
MYTH There's too much paperwork involved once you incorporate.
I don't have the time.
TRUTH There are some additional forms you have to complete.
There are some additional taxes you have to pay. HOWEVER... read
this carefully... for the three or four extra forms and the cost
of the additional taxes, most businesses will still save when
compared to counting every dollar you make toward personal income.
MYTH The only good reason to incorporate is for personal protection.
The difference in taxes isn't that much.
TRUTH While incorporating your business will help protect you
from lawsuits and from having your personal property seized, there
are more benefits than that. The tax savings can be quite significant.
MYTH With the attorney's fees, the CPA's fees, the additional
income tax returns, and the forms I have to file quarterly, it's
just not worth it. I won't really save any money.
TRUTH Every case is different; however, most small businesses
will more than make up the $1500 - $2000 it costs to incorporate
within the first six months to one year. Also, most small businesses
will save about 50% on taxes after they incorporate. (A qualified
CPA will be able to look at your books and give you a more accurate
figure.)
MYTH I'll have to hold meetings and keep lots of records that
I don't have time to keep.
TRUTH Not if you register as a "closed" S-Corporation. This
means you have waived the requirement to hold all those meetings
and keep all those records.
How Do You Get Specific Details?
Contact a qualified CPA in your local area. He or she can give
you detailed information on how much it will cost to set everything
up, and - most importantly - how much you will save in taxes.
Incorporation is not something to be afraid of. In fact, if
you're one of the many who will save 50% off your taxes in the
next year, it's something to go after with a vengeance!
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Diane Hughes is an accomplished Internet entrepreneur and editor
of the popular ProBizTips Newsletter. Subscribe to her newsletter
for more tips, tricks, and secrets of the trade -- plus get HUNDREDS
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