If you have a viable home business you may have wondered – “should I incorporate”? Usually the reason cited are the tax benefits. A home business has after all been called the last tax shelter available to the average person.
Of course all legitimate business expenses are tax deductible whatever form you operate under. In today’s environment what may be most important for you are issues related to legal liability and the ability to maximize deductions like health insurance coverage.
Incorporating is mandatory if you want to share ownership in a business and you don’t want an equal partner. That involves one type of corporation… a “C” corp. If you just want liability protection but are operating in an equal partnership, an LLC may be all you need.
Anything beyond your sole proprietorship however will require the creation of a separate legal entity, separate bank accounts, and different types of reporting to tax and regulatory agencies or local governments.
Some companies like Arise.com that use home based contractors REQUIRE you to have such a legal entity set up so that there is no question about your “employment” status with them.
So the question is – is your home business successful enough that incorporation is not a complete aggravation instead of a benefit?
If the money is good enough you can afford some bookkeeping help to manage it, you’re probably at the stage where this makes sense. If you’re just scraping by? Well… maybe not. It’s your decision IN CONJUNCTION with your personally chosen tax and professional advisors.
Related link about incorporating your business: Incorporating Your Business for Dummies
Click and Inc on February 9th, 2009 at 10:57 am
great advice. Thanks for the post. This is very helpful. Starting a business can be tricky, but it helps to have the chance to read about it. Thanks