What are the tax benefits to incorporating?

cantdrv55 · 12-08-2005, 07:55 AM

Specifically in CA? What about in general? Any other benefits besides asset protection? Where did you incorporate? Did you do so on your own or hire out the process? So many firms out there offer to "assist" and most recommend incorporating in NV. Not really sure which way to go or if it's even necessary.

pbs911 · pbs911's Garage

Look into the S Corp is less than 10 (I believe) shareholders. It's called a Closed Corp. Better benefits than the regular incorporation. With a regular corp you will have to pay double taxation. One for the corporate earnings and another for the income. The S Corp helps eliminate these. Plan on about $1500 to have a competent attorney set one up. You can do it youself, but the SOS filings can be a headache.

As far as asset protection, you MUST follow corporate formalities to eliminate individual liability. It takes alot of work, but is not that difficult. I pieced the corporate veil numerous times over the past few years establising inidivual liability on the majority shareholders.

Superman · 12-08-2005, 08:26 AM

Aside from asset protection, the other recognized overall benefit is access to debt. Sometimes companies incorporate to improve their debt-to-equity ratio. Debt is good. Dangerous, risky, sure. But it turbocharges earnings.

RallyJon · 12-08-2005, 08:34 AM

Quote:

Look into the S Corp is less than 10 (I believe) shareholders.

Not anymore. Bush loosened a lot of the requirements.

In most cases there is no benefit to incorporating out of state, unless you have very big growth plans. You'll still be paying taxes in the state where you do business.

You can do all the federal paperwork yourself easily. irs.gov has all the info and forms you need. The state paperwork varies, but I bet it's a pain in CA. Go to the state department of revenue web site, I'm sure they have a checklist.

84porsche · 84porsche's Garage

S corporation is 75 shareholders or less. S-corps definitely have their advantages. S-corp gives you the almost all the benefits of C-corp without the double taxation (flow through entity) meaning that end results of a particular year flow through to the shareholder or shareholders. In a C-corp, you as a sole shareholder (corporation) pays tax and as an individual receiving a salary will pay tax (hence double taxation).

Shaun @ Tru6 · 12-08-2005, 09:42 AM

We are an S Corp, love the pass-through taxation (last year anyway), and did our own filing online with the state of MA, took maybe 1 hour and $275.

NV is a new one to me. Traditionally, DE is the hot state for incorporation.

BTW, you file as a C and then apply for an S status election with the Federal government separately (at least in MA).

Can't wait to see your invention.

einreb · 12-08-2005, 10:20 AM

lower ss and medicare taxes. better options for retirement plans.

i.e. as a DBA you pay ss and medicare taxes on all earnings... instead, set up an s corp and you set a salary. pay taxes accordingly, but then pay yourself out the remaining profit in dividends. which are taxed differently. (or something like that).

cross your i's and dot your t's when you set it up and maintain the records or it will offer you very little in the way of protection.

-Bernie

RallyJon · 12-08-2005, 10:24 AM

Payroll taxes are the same either way. Somebody pays the employer's share--either you (as a sole proprieter) or your company (as an S-corp) but it's still your money going to the IRS.

Hugh R · 12-08-2005, 10:33 AM

Incorporation in CA isn't very hard, you can get the single page off the state department of coporations website and pay the filing fee of a few hundred. I was incorporated when I had my own consulting business, and we to "We the People" a filing service and they did the entire think for $399 plus state filing fees. Got articles of incorporation, corporate seal, etc. The downside is the state keeps sending you crap to fill out on your racial/sex mix of employees even if your a sole practicioner. I unincorporated because when I joined my current employer, the state minimum corporate tax is $800/year. Having a corporation makes it easier and cheaper to get family medical insurance if you have any medial history problems insurance companies can deny you, but as a corporation they can't but they can charge more.

Taxes flow from the corporation to the individual in an S corp. You also get a little bit of a corporate shield from asset protection, but as others have said, not much.