[freudling]

This is Canada mind you, but please any suggestions from Americans or Canadians are welcome, since our laws are very similar.

Started business this summer. Had some income this year from a previous job. Registered business as sole proprietorship, so all revenues are rolled into my personal income come tax filing time.

Revenues are about $14,000 per month. I may want to do business abroad as well. I don't have too many assets, but releasing my liability by incorporating is attractive, as is a potentially lower tax rate. So, should I incorporate?

[torsoboy]

Yes, it will remove a lot of risk for you personally if you incorporate.

[Mastrap]

Absolutely. The tax advantages alone are worth it.

[abe]

You will learn lots of cool and clever ways to complicate your life that will save you money.

Have your corporation buy a car (house, wardrobe) and give it to you as a free perk. Take classes and go to conventions and seminars on the corporation.

Of course get an attorney and an accountant to explore the ways to legally 'complicate' or re-structure your life and save yourself moolah.

[Mastrap]

Originally Posted by abe 

Have your corporation buy a car (house, wardrobe) and give it to you as a free perk.

Those days are over and have been over for some time now - the boys from the tax department got wise to that kind of thing.

However, there are still a couple of things you can write off. My subscription to the Globe and Mail is paid for through work, so is my internet connection at home. It is legitimately used for work reasons, so no problem there. I gas up the car once a month on my company credit card, which is about right and gets accepted. Anything more often and I would have to keep a logbook and that's just more hassle than it's worth. Client entertainment is not what it used to be, and for good reason, so don't bother racking up huge restaurant charges on your CC. You won't be able to write them off.
Clothing allowance is still in effect (IIRC) but has been much reduced.

Talk to your accountant about how best to pay yourself, there are multiple ways to reduce your personal taxation. For example, shareholder's dividends are taxed at a lower rate than a regular salary. However, you can't just simply pay yourself monthly and just call it a dividend.

[abe]

Originally Posted by Mastrap 

Those days are over and have been over for some time now - the boys from the tax department got wise to that kind of thing.

However, there are still a couple of things you can write off. My subscription to the Globe and Mail is paid for through work, so is my internet connection at home. It is legitimately used for work reasons, so no problem there. I gas up the car once a month on my company credit card, which is about right and gets accepted. Anything more often and I would have to keep a logbook and that's just more hassle than it's worth. Client entertainment is not what it used to be, and for good reason, so don't bother racking up huge restaurant charges on your CC. You won't be able to write them off.
Clothing allowance is still in effect (IIRC) but has been much reduced.

Talk to your accountant about how best to pay yourself, there are multiple ways to reduce your personal taxation. For example, shareholder's dividends are taxed at a lower rate than a regular salary. However, you can't just simply pay yourself monthly and just call it a dividend.

I'm stuck in the time warp again.

Thanx.

[Captain Obvious]

Yes
In Canada the tax benefits alone make the move an intelligent thing to do.

[peeb]

I'd get some serious advice on this - there are advantages to being a sole proprietor - you could actually end up loosing money through being taxed twice on this. Advantages if you have your family as employees though - you can deduct benefits like health insurance etc, and if you have them on your board (board meetings).

[Chuckit]

Going by what I know of U.S. law, I would say abso-friggin'-lutely. The protection of your personal assets alone is worth it, what with how sue-happy some folks can be.

[Mastrap]

Incorporating does not protect you from personal liability. If you're found to be personally negligent then your assets are toast, regardless.

[Chuckit]

Originally Posted by Mastrap 

Incorporating does not protect you from personal liability. If you're found to be personally negligent then your assets are toast, regardless.

Yes, but if somebody sues your company for, say, patent infringement (to use an example I've seen with Apple like five times in the past month), they can't take your own stuff. Yeah, you can still be sued for personal negligence, but you can't be punished for your company. (At least that's my understanding from the business owners I know — not a lawyer and all that.)

[Mastrap]

Oh absolutely - I wasn't out to pick a fight. It's just important to know that incorporation is not a 'get out of jail free' card.

[torsoboy]

We (me and my partners) have an S Corp that we use for our main business (keeps taxes low for everyone, and we don't have to worry about receiving 1099s from people), and we (my wife and I) have an LLC for a side business we are doing (keeps accounting simple).

The only disadvantage to the corporation that I have found is that it requires paperwork, and the frequent tax processes (monthly employee taxes, quarterly business taxes, yearly filings, etc.) can be a hassle even with an accountant. But that all goes with doing business I suppose.

[freudling]

Thanks for all the advice.