The process of incorporating a company is commonly referred to as company formation. The benefits of company formation are numerous. Tax savings are one of the most obvious. But there are also other benefits. Let’s explore a few of them.
Tax Savings
When forming a business, one of the most common questions you should ask yourself is whether or not to incorporate. While incorporating can save you money, it is important to note that tax savings are not guaranteed and will depend on several factors. For example, if you own a business that relies on income from other sources, you will end up paying higher taxes than if you were operating as a sole proprietor. In addition, the costs of setting up a corporation can outweigh the tax savings.
For example, a corporation can deduct many business expenses, including start-up and operating costs, product and advertising outlays, salaries and bonuses for its employees, and all costs associated with employee benefits. This makes the process of forming a business extremely beneficial for most people. In addition, a corporation can deduct many expenses of running a business, including salaries, bonuses, and all other costs associated with employee benefits. In addition, it is possible to reduce your personal income tax bill by choosing to incorporate.
S-corporation profits are often distributed to shareholders, as “distributive shares.” The benefits of an S-corporation include the tax savings associated with it. In addition, profits from an S-corporation are generally treated as ordinary income and are not subject to self-employment taxes. In addition, profits from an LLC are not subject to Medicare or Social Security taxes, so there are fewer expenses to pay when it comes to tax returns.
If you are unsure if you can save money based on your company’s formation, give me a call. I can help you determine the best option for your business and the tax savings you might incur.
Additional Resources
Why the Legal Structure of Your Business Is Important