To Incorporate or not, that is the question?
Callum Sutherland - Dec 03, 2021
You make enough income that you can leave money inside the corporation and defer personal income tax until later. You will eventually face the tax bill when the money leaves the corporation but it is deferred.
Over the past few months, I have come across a few entrepreneurs that were contemplating incorporating their business. It is a complex topic and a difficult decision to make. I'm keeping my thoughts short and simple and attached a link to a video with further explanation. In my opinion, two of the most common factors to consider are:
- You make enough income that you can leave money inside the corporation and defer personal income tax until later. When you leave money inside the corporation you typically only pay the small business tax rate which is usually lower than your personal income tax rate.
- You want to be able to sell your business in the future. A corporation is an entity that can exist after you go so you can sell it or pass it along to your family.
There are other reasons you might want to consider. As a corporation, you can raise money by selling shares or bonds to investors. One may consider incorporating for potential creditor protections. One thing to keep in mind is that if you take out a loan and are a newer business you will likely have to guarantee the loan and creditor protection will not apply.
There are also more tax deductions for corporations than for personal taxes. This is a benefit but not a sole reason to incorporate. Deductions are only good if you are making money and you want to reduce your taxes.
Incorporating your business is an important decision and it does come with ongoing costs. You should consider seeking the advice of an accountant and a lawyer before making your decision. and or lawyer before making the decision and make sure it is best for your situation.
I found a video detailing the incorporating process. I found it helpful, you may too. Watch here.