Thinking about incorporating? Like any major decision, there are pros and cons to incorporating your business. Here’s the skinny on when to add that “Inc.” to your name!
- Limiting Liability: Your business becomes its own separate entity, which means as a shareholder, you’re not personally liable for any debt it incurs, unless you’ve given a personal guarantee. Your personal assets cannot be seized to pay business debts, which can happen as a sole proprietor. Your business also has an unlimited lifespan, meaning it can exist regardless of ownership changes.
- Tax savings: Corporations are taxed at a lower rate of only 13.5%. This is a great incentive for sole proprietors earning between $60,000-$100,000 on their personal tax returns.
- Earnings: If you’re making $100,000 in gross earnings and plan on being able to save $40,000 per year, a corporation can be a good tax-preferred saving alternative to RRSPs.
- Savings: Corporations also provide alternative avenues to save for your child’s postsecondary education or retirement.
- Government reporting: You’ll have to do more paperwork!
- Increased costs and responsibilities: The cost of managing your books and taxes as an incorporated professional is more than as a sole proprietor.
- More tax returns: You’ll have to file a corporate tax return, as well as, a personal tax return.
Incorporating alone will cost roughly $750,000 through a lawyer, which is recommended if there are multiple shareholders or assets to transfer. You can incorporate through the BC Corporate Registry for $350 online, as well.
Annual accounting costs can range from $2,500 for a simple corporation to $6,000 for an average small incorporated business. Even though this may seem high, it’s a low price to pay for piece of mind that your business’ finances are being properly and accurately looked after.
So there you have it. If you’re thinking of incorporating, come see us. We’re happy to walk you through the advantages and disadvantages as they pertain to your unique situation.