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The Benefits Of Incorporation

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                   SoHo NEWS & TIPS
Helping You Make the Most of Your Small Office/Home Office

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This week our small business guru Kelly Spors answers the 
question of whether a person starting his or her own business 
should incorporate immediately. CPA Robert Caplan says tax 
liabilities for corporations are generally the same, but 
that's not the only reason to incorporate! 

Check out the column below. 


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The Benefits Of Incorporation

Question: I am interested in starting my own business but I 
want to incorporate for the tax benefits. Should I incorporate 
before I do anything with my business or wait until I have 
some equity built up? I am going to be focusing on real-estate 
and stock ventures.

Answer: It's important to enlist the help of some tax and 
legal experts with this decision, because there's no way to 
provide a definitive answer without a thorough review of your 
business plans and state laws and taxes.

That said, don't fool yourself into thinking you'll reap any 
major tax benefits from incorporating, says Robert Caplan, 
a certified public accountant in Foster City, Calif. Tax 
liabilities for corporations are generally the same, and 
sometimes even much higher, than those of a sole proprietor 
or partnership. "I hear people all the time talk about tax 
benefits of incorporating, but they're just not there," Mr. 
Caplan says.

A compelling reason to incorporate, however, is the protection 
of personal assets that comes with it. If someone trips over 
a garden hose on one of your properties and sues, or the 
business falls into massive debt, your personal assets would 
be protected in court -- as long as you can prove you're up-
holding the numerous extra responsibilities and recordkeeping 
that come with being a corporation.

Continued below...



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David Hsu, a management professor at University of 
Pennsylvania's Wharton School, says beyond liability pro-
tection, the decision to incorporate also means considering 
the "expected trajectory of the business," such as how it 
will be funded and how long you expect the business to last. 
Small-business owners aiming to attract venture capital, go 
public, or turn their little computer business into the next 
IBM are prime candidates for forming a C corporation.

But if you're simply seeking liability protection for a small 
business, think instead about creating a limited-liability 
company. An LLC is similar to a partnership but provides the 
legal protections of a corporation without the burdensome 
formalities. (LLCs also tend to offer better tax treatment 
for real-estate properties than full-fledged corporations 
because they can get individual tax treatment, Mr. Caplan 

Keep in mind: You can always convert your business to another 
type later on. "You're not locked in forever," Mr. Hsu says. 
Reorganizing does, however, involve "some extra legal and 
administrative costs."

So what did you think about this issue? Drop me a line and let 
me know at: mandi@gophercentral.com

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