Should I incorporate?

Question

I want to buy a business that Nets over 150,000 a year, I want to incorporate. What type of benefit do I get if I incorporate my business?
e.g taxes, right offs
Thank you

Answer 1

This situation calls for a long sit down session with your accountant to determine the best way for you to proceed. Do it before you make the plunge.

Answer 2

You'll pay less tax in general if you do NOT incorporate, at least not as a C-Corp. An S-Corp passes through the income to your personal return and is taxed there. However even an S-Corp generally has to pay state excise taxes on top of the state income taxes so will generally pay more in tax than a Sole Proprietor.

If you need the protection from liability that a corp offers an LLC may be a better bet. But check with a local expert since many LLCs are treated as corps by the states and you'll pay the same excise taxes as a corp does.

In most cases it's smarter to avoid the fancy legal arrangements (and the bills that go with it!) and just buy liability insurance. Unless your business is a highly risky one where you're likely to be sued, insurance will generally be cheaper than the costs of incorporating and the additional taxes and fees involved.

As far as deductible business expenses go, it won't make any difference how your business is arranged legally. You can deduct ordinary and necessary expenses in the generation of income; no more and no less. If it's deductible by a corp it's deductible by a Sole Proprietor.