Should I Incorporate My Business?

There are many factors to consider in a decision to incorporate a new or existing business, only some of which are the tax implications.

For example, if your business involves substantial personal risk or product liability, incorporation can set up a limited "layer of protection" between you and your creditors. Generally, you will still be liable for your own actions in your profession, and as a supervisor of those under you. Most professionals, such as physicians, remain liable for malpractice even if incorporated. A corporation also allows for easy continuation of a family business, by simply passing the stock to the preferred successor. These are legal considerations which should be discussed with an attorney.

For tax purposes, incorporating creates a separate taxable entity, which - in most states - will continue to exist even when the business in the corporation closes. As the incorporator and/or shareholder of the corporation, you may have responsibilities for filing federal corporation income tax returns, as well as state and sometimes local returns and reports to several different agencies. There may be an annual state tax or fee, even if the business has no income. Therefore, this responsibility should not be undertaken without knowing the implications involved.

If you incorporate, you will usually become an employee of your corporation, drawing a fair salary based on the value of your services.

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