Why a Corporation
Why a Corporation
Personal Liability Protection
The primary reason small business owners choose to incorporate is to protect their personal assets, such as their home, car or family savings. In the event of a lawsuit or if your business should fail, your personal assets can not be touched, assuming you have properly formed, capitalized and maintained the corporation. This limited liability feature of corporations is not available in a sole proprietorship or general partnership, where the participants are personally liable for all business debts. Incorporation is an essential way to protect your personal assets.
As liability insurance becomes more costly for less coverage, asset protection is becoming more of a critical factor for entity selection. Incorporation provides another layer of complexity, giving you protection for your home and other personal assets.
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Jury award in tort cases often exceed millions of dollars and the majority of business owners in the United States are protected. Protect yourself by incorporating! Tax SavingsBy forming an S corporation (forming a corporation and electing “S” status with the Internal Revenue Service) you may end up paying less taxes than you would by operating your Business owners are required to pay “self-employment tax” which covers Medicare and Social Security; it’s usually calculated on 15.3 percent of profits. Contrast this with an S Here’s an example: Say you have net income of $90,000 and pay yourself $60,000 in salary, leaving $30,000 in the business. As a sole proprietor, you would pay self-employment tax on the full $90,000 ($90,000 x 15.3% = $13,770). But as an S corporation, you would only owe self-employment tax on the $60,000 in salary ($60,000 x 15.3% = $9,180), resulting in a savings of $4,590. Ultimately, you can save thousands of dollars by forming an S corporation. |