Tax Advantages Of Incorporating A Business – Should You Incorporate?

The tax benefits of incorporating a business is one of the main reasons that owners decide to incorporate their businesses, regardless of what market they work in. Other types of businesses, like sole proprietorships, are not afforded nearly like many tax advantages as an incorporation.

A move named income shifting is one which helps the business, and its owners, immensely.  This is a system where the total income of your corporation is divided among its members.  Now you may be questioning, but how does this help?  By shifting the income to numerous people, the overall tax needed to be paid on it could be notably lower.  This represents a great tax advantage of incorporating a business. 

Being able to provide a greater amount of fringe benefits also factors into the tax advantages of incorporating a business.  This is from the fact that other kinds of businesses don't get as much of a tax deduction on such things as medical and retirement intends.  In some cases, you can get a full exemption provided that you select the right plans. 

Another tax benefit of incorporating a business is that of making your business a completely split entity.  This saves you from liability with your personal assets in case your business gets in trouble, on top of allowing you to structure your business to benefit from your business income and lower tax rate.  There are also a lot of deductibles that you would not get if you had a sole proprietorship or partnership. 

Although you don’t want it to happen, business losses can occur.  With an incorporation, you're entitled to an unlimited amount of business losses, rather than the very stringent requirements for other structures of business.  These are the main tax advantages of incorporating a business, and the ones that you might want to have in mind when choosing whether or not you want to incorporate your business. 

Income delegation is another really good aspect of incorporation.  You will be able to state when you obtain income yourself, instead of income towards your business.  This is a great way to keep your income tax for both your personal and business selves down low, and is a huge reason for incorporating a small business. 

You could also receive a small business tax deduction.  This comes from incorporating for small business, and is 16% on your first $200,000 in profit.  This may or may not be lower than what you're paying from your personal income taxes, but is certainly something that should be taken into consideration.