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Disadvantages of incorporating?
A new consultant and member of Patina Nation asks for your insights -- "disadvantages to watch for if I'm considering incorporating?" Comments and experiences encouraged.
There are more advantages than disadvantages of incorporating your business. Since the question is what are the disadvantages, the one I see is in higher taxes but you could lower your income through allowable deductions and expenses.
My firm is a Nevada based S-Corporation. My firm is located in CT. I created this corp over 20 years ago, and it has been a blessing, a tax savings, I provide my own corporate health insurance, and corporate retirement + 401(k) match. If you want to learn more get in touch with Nevada Corporate Headquarters.
It depends on what your business is. When I started my business, I talked to my CPA to understand the types of incorporating, the advantages/disadvantages of each - it was very helpful
One of the many things I like about incorporating, is keeping everything separate - personal & business. Yes, I pay higher taxes, but I also have the advantage of writing off so many more things.
Something to consider: There are more forms for a business than being a sole-proprietor and a corporation. If a corporation, the whole tax structure is more complex, and may or may not be advantageous depending on individual circumstances. An LLC (limited liability company, not corporation) is another option to consider, as is a partnership.
Do note that if you are doing business by yourself, an LLC (and I think a corporation) may not give you as much liability shielding as you might think, since someone can sue you directly as well as the company for the work you performed.
Legal and tax implications are what should drive your decision as to what business structure to follow. Generally speaking, corporations (C-corps) are more complex and costly. The size of the entity also has to be considered. So, net net; it depends.
Setting up as a corporation will be particularly helpful in shielding you from taxes as long as you have a growing accrual-based accounts receivable. However, in years when AR shrinks, you may find that you have a tax liability at the higher corporate rate. An LLC or partnership allows you to pass the net income through your personal taxes at the lower personal rate. However, an LLC or partnership will be more complex to manage in terms of adding new partners/members. The corporation will simplify the process of broadening ownership, if that is an objective. A thorough consultation with an experienced business lawyer will be helpful to you, I think, in terms of matching the selected business form with your objectives.
There is no standard answer, it depends on what you want and intend to do and sometimes may include where and the nature of your product or service. It will inherently depend upon your financial position, personal and operational.
There are additional options to a corporation, these vary by State, and one can obtain similar tax treatment in different ways. I would strongly recommend talking his through with an attorney or CPA (quite probably both in the end) in detail to determine what is best for you and if so, where to do it.
Plain and simple you should speak to a lawyer and not rely on the opinion/observations of laymen - there are advantages and disadvantages to each form of entity you can choose (LLC, S Corp, C Corp, Limited Partnership) as well as to remaining a sole proprietor. Don't try to cut corners and save a few bucks - if you are asking the question you should consult an attorney. If they are at all sophisticated they will also be well versed in the tax consequences and you will not need to also consult a CPA. However, I would not trust a CPA's opinion regarding the legal issues.