What are the pros and con of incorporating my small business instead of remaining a sole proprietor?

Question

I am approaching 62 years of age, my son is in college. I have a small janitorial business that my wife and I work part time along with three part time employees. I also work part time three days a week as a building inspector for the city. I am considering taking social security at age 62. I know I am allowed to earn 12,000 per year with out paying back taxes. I have felt it best to get the business out of my name and receive a small check. Have my son operate the business and keep my part time salary low. Are is it best to continue as sole proprietor and pay taxes on net profit.

Answer 1

The main reason to incorporate is to protect yourself and your personal assets from liabilities. Janatorial business has its fair share of liabilities in case a client claims something is stolen or broken and the replacement or defense costs exceed your insurance. Also, if the business suddenly loses money (i.e. you or your wife suffer sudden health problems and can't work, etc. - a factor to consider at age 62)- your personal money will be protected from being used to collect the business debts. This is valuable to you in your older age as losing personal assets because of a busines event at 62 may be difficult to recover from, especially if the loss is because of the failing health of you or your spouse. But, you are right, the downside is you and your son will have to pay corporate taxes so you will pay more to Uncle Sam by incorporating. There may be a way to structure your business as a "partnership" with your son whereby you are not entitled to the profits, you recieve a salary, without incorporating and paying the double tax. Check with a business law attorney to find out how that would take place. Otherwise, I favor the LLC option.

Answer 2

The most significant pro of not is that it's easier to do taxes. But, the bggest pro TO incorporate is protection. Basically, sole proprietorships and partnerships put your personal assets at risk.