A second reason many people consider incorporating is to take advantage of corporate tax laws. It’s true that in most situations businesses can decrease their taxes by incorporating. The question is, “Will the tax dollars saved be greater than the costs to be incorporated?” It’s important to consider the ongoing expenses for a corporation, like higher accounting fees, state income or franchise taxes, legal expenses and administrative demands. These ongoing costs could wipe out any tax savings from incorporating.
When incorporating, there is also the question of whether to elect S status with the IRS. This choice is strictly based on how the corporation will be taxed. The truth is that there is no way anyone can say the S or the regular C status is better than the LLC without having an intimate knowledge of your business finances.
So why would someone choose a corporation over an LLC? Again, it all comes down to tax advantages, and the only way to determine if there are tax advantages is to crunch the numbers. As a general rule—and I emphasize general—if the taxable profits in the business are more than $25,000, there is the possibility that a corporation might have some tax-saving advantages.
The legal form of a business is an important issue. I would suggest getting professional advice before making a decision. You can give
Business 101 a call at 800-649-6273. One of our experts could get more detail about your businesses and be in a better position to evaluate which business structure might suit you the best.
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