Here Are The Tax Advantages Of Incorporating A Business
The tax advantages of incorporating a business is one of the main reasons that people choose to incorporate businesses. No matter in what market they are. Other types of legal entity, such as sole proprietorships, are not afforded nearly as many tax advantages as an incorporation.
A move called income shifting is one that helps the business, and its owners, immensely. This is a method in which the total income of your corporation is divided among its members.
You might wonder, how does this help?
By shifting the income to several individuals, the overall tax that is required to be paid on it can be significantly lower; which is a great tax advantages of incorporating a business.
Being able to offer a greater amount of fringe benefits also factors into the tax advantages of incorporating a business. This is from the fact that other types of businesses do not get as much of a tax deduction on such things as medical and retirement plans. In some cases, you can get a full exemption if you choose the proper plans.
Another tax advantages of incorporating a business is that of making your business a completely separate entity. This saves you from liability with your personal assets in case your business gets in trouble. As well as allowing you to structure your business to take advantage of your business income and lower tax rate. There are also many deductibles that you simply do not get when you have a sole proprietorship or partnership.
While you do not want it to happen, business losses can occur.
Corporations are entitled to about unlimited business losses, as opposed to the very stringent requirements for other structures of business. These are the main tax advantages of incorporating a business, and ones that you will want to keep in mind when deciding whether you want to incorporate your business.
Income delegation is another great aspect of incorporation. You can state when you receive income yourself, as opposed to income towards your business. This is a great way of keeping your income tax for both your personal and business selves down low and is a huge reason to incorporating for small business.
You can also receive a small business tax deduction. This comes from incorporating for small business, and is 16% on your first $200,000 in profit, which may or may not be lower than what you are paying from your personal income taxes. It is something that should be investigated, however.