For any business, there are financial considerations to be taken into account when deciding to incorporate. Incorporation means that you will now be an employee of that corporation. Whether you are the only employee or not is irrelevant, you will be an employee. If you decide to organize yourself into a C corporation, you will be able to use one hundred percent of your benefit costs (medical and dental) as tax-deductible for the corporation or business.
Without incorporation, these benefits are only partially deductible if you remain only self-employed. The benefits are a huge bonus towards incorporation for the self-employed primarily when taken into account the cost of health benefits or insurance packages outside of a large corporation. As with any great entity, however, with great formation comes great responsibility.
A corporation does not allow flexibility in the profits. For example, the sole operator who is self-employed takes 100 percent of their earnings to do whatever they want to do with. (I.E. pay the mortgage, buy milk or pick up a novel.) For a corporation, the same sole operator will have to pay him or herself a salary, but they are limited to pocketing 100% of the profits.
Finally, on the financial front are the tax benefits to being a corporation. Sole proprietors face a much larger tax burden yearly to demonstrate their receipts versus their cost. A large number of items or costs that would be defrayed under business expenses for a corporation are only partially deductible for a sole proprietor. Since taxes can wipe out savings, incur legal costs and more, the pros of incorporation for tax considerations can be heftier than all of the above combined.It’s important to consider all of the financial ramifications.
Ultimately, incorporating can save an individual hundreds or thousands of dollars. The investment to incorporate can pay off in the first year’s taxes alone. The paperwork to incorporate doesn’t have to be complicated. All you have to do is make the decision to do it. If you’re thinking about incorporating, check out IncParadise.