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Ask Slashdot: When Is It a Good Idea To Incorporate?

timothy posted about 2 years ago | from the when-you're-visiting-delaware dept.

Businesses 293

First time accepted submitter stairmaster writes "A couple of months ago I came across an opportunity to supplement my income by doing some consulting work (read mobile app development) on the side. It appears that I will be doing this work for some time and my question for you is this: is it worth it to incorporate as a business? I know that the answer to this question is extremely dependent on circumstance but I'm interested in your experiences. Have you been in a similar situation, and if you have how did it work out for you?"

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As soon as you have anything to take (4, Informative)

Anonymous Coward | about 2 years ago | (#41323741)

If you have any assets at all, it's a good idea to incorporate to shield them from lawsuits. (It puts the Limited in Limited Liability)

Re:As soon as you have anything to take (1)

Anonymous Coward | about 2 years ago | (#41323839)

There is a difference between an LLC and a Corp. Is the OP talking about becoming an LLC or a full blown corporation?

Re:As soon as you have anything to take (2, Informative)

QuantumRiff (120817) | about 2 years ago | (#41323911)

From my experience, an LLC is used for partnerships. In some states, only certain professionals can even form LLC's. Often they are for protecting the partners from each other.. (ie, accountant partner screws up.. Lawsuit can hurt the partner, but they can't go after the assets of the other partners, if they were not involved)

Corporations are a way to shield owners (stock holders) from liability. (You can sue Bill Gates, when MS screws up, just because he's a stock-holder)

Re:As soon as you have anything to take (3, Informative)

QuantumRiff (120817) | about 2 years ago | (#41323929)

>Corporations are a way to shield owners (stock holders) from liability. (You can sue Bill Gates, when MS screws up, just because he's a stock-holder)

Why no edit button Slashdot? that should be you can NOT sue Bill Gates....

Re:As soon as you have anything to take (5, Informative)

F34nor (321515) | about 2 years ago | (#41324185)

This is what is so wrong with the US. Corporations were originally granted limited liability for investors in return for limited rights. Now that the 14th amendment has granted "human rights" to "property" corporations have both limited liability and human rights giving them in fact more rights than humans. This is why Romney saying "corporations are people my friend" is so dangerous. If corporations want to petition government the executives can spend their considerable income to do it, the employees can spend their merger income to do it and the investors can liquidate some stock and spend their money to do it but the corporation itself petitioning government would be as abhorrent to the founders as tax free churches telling people how to vote.

Re:As soon as you have anything to take (1)

Aquitaine (102097) | about 2 years ago | (#41324715)

This is what is so wrong with the US. Corporations were originally granted limited liability for investors in return for limited rights.

Corporations were not "granted" to anybody and certainly not in exchange for anything.

Corporate organization is done at the state level. Each state has different laws (though they typically have to accept 'foreign' entities, e.g. companies/corps from other states, if they want to do business in their state).

The federal government did not have some secret corporation power that it decided to bestow on people in exchange for something. States enabled people to form companies and corporations to further commerce. If everybody were personally liable for everything their company did (as opposed to, perhaps, limited/i> liability), nobody would run companies.

Re:As soon as you have anything to take (1, Insightful)

spire3661 (1038968) | about 2 years ago | (#41324291)

Thats what PREVIEW is for.

Re:As soon as you have anything to take (3, Funny)

MobileTatsu-NJG (946591) | about 2 years ago | (#41324667)

*That's

Re:As soon as you have anything to take (3, Interesting)

jones_supa (887896) | about 2 years ago | (#41324391)

Why no edit button Slashdot?

Some message boards that have an edit button create sometimes quite confusing discussions.

Re:As soon as you have anything to take (1)

maroberts (15852) | about 2 years ago | (#41324531)

Why no edit button Slashdot? that should be you can NOT sue Bill Gates....

So that evil people cannot wait until their comments are modified to +5 Insightful before changing all the content to links to tubgirl or goatse

Re:As soon as you have anything to take (2)

Mephistophocles (930357) | about 2 years ago | (#41323999)

In some states, only certain professionals can even form LLC's.

True but you can technically form an LLC in any state you want. Delaware and Nevada are the most popular due to their lenient oversight laws (on LLC's at least).

Re:As soon as you have anything to take (2, Informative)

Anonymous Coward | about 2 years ago | (#41324007)

I believe you're confusing LLC's with LLP's. LLC's are general purpose vehicles for just this sort of scenarios. LLP's are designed for the unique constraints of Architechture, Law, Medical and similar **licensed** professions; and as such, limit who can form. Straight "partnerships" on the other hand (meaning not LLP) can be formed without any paperwork at all, by simple agreeing to try to sell/make stuff with another person.

Re:As soon as you have anything to take (0)

Anonymous Coward | about 2 years ago | (#41324417)

I believe many states have one or the other.

LLC's are generally limited to 60 partners or less, you get pass-thru taxation (unlike corporations who are all double taxed), and you get the liability shield IF, and ONLY IF, you treat your business as a wholly seperate entity.

If you go comingling assets between you and the business, when someone comes after the business, your stuff will be fair game too.

Re:As soon as you have anything to take (0)

HornWumpus (783565) | about 2 years ago | (#41324723)

If you commingle assets in any type of corporation the shield is broken. You might also be on the hook for defrauding your investors.

Re:As soon as you have anything to take (2)

UtterCoward (1312805) | about 2 years ago | (#41324625)

As AC above points out, you have to be careful with your LLC. In additional to no commingling assets, you have to be aware of the possibility that single-owner LLCs can be treated as Sole Proprietorships for purposes of litigation. If you are being sued and the judge decides that your LLC is in fact an SP, you have no liability protection at all. Having at least one other contributing partner -- preferably not a spouse -- should keep that from biting you.

Re:As soon as you have anything to take (0)

Anonymous Coward | about 2 years ago | (#41324029)

IANAL. You might be thinking of LLPs which can usually only be formed by certain types of professionals like lawyers, licenced PEs, or accountants. LLCs can be formed with only one person on the board in most states that I am aware of. You do need to adequately capitalize the corporation up front to actually have limited liability though.

Re:As soon as you have anything to take (0)

Anonymous Coward | about 2 years ago | (#41324311)

I believe you're thinking of an LLP (Limited Liability Partnership), not an LLC.

Re:As soon as you have anything to take (2)

Anvil the Ninja (38143) | about 2 years ago | (#41323875)

IANAL, but be advised there are procedures to get around that shielding (http://en.wikipedia.org/wiki/Piercing_the_corporate_veil). I ran a software consulting business as an S-corporation years ago and got strongly worded advice to be very careful not to mix personal and company funds, to use any corporation-purchased computers for work only, and not to claim a general use room in our home as a home office for deductions.

Re:As soon as you have anything to take (1)

Anonymous Coward | about 2 years ago | (#41324307)

As an add on to this, just going to legalzoom and setting up a $99 LLC will not buy you any protection from a decent litigator. Unless you can show that you are really following the intended letter of the law, e.g. have quarterly or annual meetings regarding the corp. with minutes, etc. the judge can simply look right past a paper LLC. If you are going to do it, do it right and get advise from a good lawyer. Because if you don't you are basically wasting your time.

Re:As soon as you have anything to take (0)

Anonymous Coward | about 2 years ago | (#41324541)

Actually, LLC rules differ from state to state. Most states do not require LLCs to have annual meetings, but they do have other requirements.

It's important to do the research.

Re:As soon as you have anything to take (2)

Banichi (1255242) | about 2 years ago | (#41324677)

Good Lawyer is the emphasis.

An acquaintance of mine is currently talking to the IRS/State/Local tax revenuers due to the notices they had sent going to the lawyer who set up the LLC, instead of her. The lawyer didn't notify anyone that the LLC was dissolved after two years of non-payment to the revenuers, 10+ years ago.

The lawyer saw my acquaintance just about every month since, so no "out of sight, out of mind" accident claims. This was a massive screw up on his part.

Long story short, fuck lawyers. Do the heavy lifting yourself.
Oh, the law is so obtuse you can't get a foothold?
Welcome to America, here's your accordion.

Re:As soon as you have anything to take (1)

afidel (530433) | about 2 years ago | (#41324405)

The computer one seems funny to me, as an example with corporate cars there's a standard personal use line for payroll taxes (including for an S-corp), I'd assume you'd just have to declare that a certain percentage of the PC use was personal and pay payroll taxes on that fraction of the depreciation schedule.

Re:As soon as you have anything to take (1)

AwesomeMcgee (2437070) | about 2 years ago | (#41323887)

Precisely. It's a sham of a legal system the way it works but I've seen people get tons of loans for their "business" to pay themselves their salary/pay their bills/etc and then file bankruptcy under the business to disavow all of these loans without it ever harming their personal credit one bit. Limited liability, read: No liability. If you're making money in a position where you can legitimately claim a business, do it.

Re:As soon as you have anything to take (1)

devman (1163205) | about 2 years ago | (#41324331)

Honestly that is the creditors fault. If a lender lent money to a business with no credit history without having the owner(s) personally guarantee them (co-sign) then they can't be surprised by this outcome.

Re:As soon as you have anything to take (2)

Dcnjoe60 (682885) | about 2 years ago | (#41324703)

Precisely. It's a sham of a legal system the way it works but I've seen people get tons of loans for their "business" to pay themselves their salary/pay their bills/etc and then file bankruptcy under the business to disavow all of these loans without it ever harming their personal credit one bit. Limited liability, read: No liability. If you're making money in a position where you can legitimately claim a business, do it.

If other creditors of the corporation discover the fraud that was perpetrated, and they will, it won't bode well for the person who attempts to do what you describe.

Re:As soon as you have anything to take (2)

mr1911 (1942298) | about 2 years ago | (#41323895)

Agree with this. The sooner the better.

As to how to incorporate, you did not provide enough information and Slashdot isn't the best forum to handle this. Hire a competent attorney.

Running your own business isn't all fun and giggles. Spend a few bucks and do this properly. It may save your ass down the line.

Re:As soon as you have anything to take (3, Informative)

ShanghaiBill (739463) | about 2 years ago | (#41324737)

Hire a competent attorney.

NO! This is terrible advice. The attorney will cost you thousands of $ and steer you toward the most expensive option. This just isn't that complicated.

The choice is simple: If you expect to ever seek VC funding or have an IPO then form a Delaware C Corp. Otherwise form an S Corp in the state where you reside and/or do the majority of your business. There are plenty of websites where you can do this online for a few hundred bucks. I use www.businessfilings.com [businessfilings.com] for all my domestic corporations, but there are probably other sites just as good.

frist ps0t (-1)

Anonymous Coward | about 2 years ago | (#41323751)

tihs is a frist ps0t

Re:frist ps0t (-1)

Anonymous Coward | about 2 years ago | (#41323847)

You mean first fail. Haha.

NEVER (-1)

Anonymous Coward | about 2 years ago | (#41323755)

see comments title for more information...

First post (-1)

Anonymous Coward | about 2 years ago | (#41323759)

When you don't have enough free time on your hands to be write the first post on Slashdot

Probably (0)

Anonymous Coward | about 2 years ago | (#41323769)

If for no other reason, incorporating (S-Corp or LLC) gives you some legal separation between your personal and work related finances. Buy an general liability insurance policy (~$250/yr) and you're good to go.

Probably Not Worth It (2, Informative)

Anonymous Coward | about 2 years ago | (#41323777)

Two main reasons to incorporate are liability and taxes. Liability probably isn't a big problem for you. Taxes come down to how much for how much. There are costs associated with incorporating, including your time, separate bank account, state and federal filings, etc. If you incorporate, do it because the tax savings clearly outweigh the costs.

Also, don't bother with a corporation (S or C). If you do this form an LLC. There are many advantages which you can google if you are really interested.

Re:Probably Not Worth It (0)

Anonymous Coward | about 2 years ago | (#41324283)

Liability being not a big problem? How so? Mobile app development, right?

Say some dumbass is using your mobile app while driving. He crashes into a Bently at 65 mph and the Bently crashes into a BMW that was in front of it, causing serious injury to the driver of the Bently and minor injury to the driver of the BMW. That dumbass who crashed into them then sues you for your app causing the accident. All your assets are now at risk (at least in the US).

Sure the dumbass probably won't win, but if you're an LLC, the LLC and the LLC's assets are now at risk, while your car, your house, and your personal bank account are not at risk. Incorporating as an LLC is not prohibitively expensive, and if you're making any sort of recommendation that could cause damage to anyone or lead to a lawsuit if misinterpreted, you should really be under the LLC or S/C corp veil.

Re:Probably Not Worth It (2)

qwijibo (101731) | about 2 years ago | (#41324313)

I did consulting for several years as a single member LLC. The paperwork/cost of getting setup was negligible and made contracting through various companies easy. There's a lot of contract gigs available, and you can get a larger percentage of the rate if you do them as 1099 instead of W2 contracts. That becomes important if any of the part time gigs end up becoming your primary source of income.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Single-Member-Limited-Liability-Companies [irs.gov]

Re:Probably Not Worth It (0)

Anonymous Coward | about 2 years ago | (#41324563)

Before you do this, check the state regulations. There can be hidden costs for an LLC, ranging from yearly fees to one-time "publication fees" of up to $2000.

Re:Probably Not Worth It (1)

Dcnjoe60 (682885) | about 2 years ago | (#41324747)

Whether your business is formed as an LLC or you are a sole proprietor shouldn't make a difference as to the issuance of a 1099 vs W2. Obviously, an LLC would receive a 1099, but unless your only client is the firm you are contracting with, then so should a bona-fide sole proprietor.

Re:Probably Not Worth It (1)

samkass (174571) | about 2 years ago | (#41324499)

Two main reasons to incorporate are liability and taxes. Liability probably isn't a big problem for you. Taxes come down to how much for how much. There are costs associated with incorporating, including your time, separate bank account, state and federal filings, etc. If you incorporate, do it because the tax savings clearly outweigh the costs.

Also, don't bother with a corporation (S or C). If you do this form an LLC. There are many advantages which you can google if you are really interested.

Not bad advice, but the LLC vs. S-Corp decision partly depends on the state you're in. An LLC in New Jersey is $50/year and you can set it up online on a Sunday in an hour. In New York it requires publishing notices and can cost hundreds or more. Every state has their own LLC rules. The only Federal filing is a one-time EIN request. Otherwise it's usually just pass-through (disregarded entity) taxes that appear on your personal tax return each year for LLC.

Once you have it, a separate bank account is actually really nice. Your taxes at the end of the year get a lot easier if all your income and costs are in a completely separate statement. Most banks can put a business and personal account on the same online page so it's easy to manage.

As soon as possible .... (5, Informative)

Anonymous Coward | about 2 years ago | (#41323781)

It limits your personal liability. If you are doing consulting, there is always the possibility that you will err and have someone come after you. Better for them to come after your business than yourself personally and possibly lose your home and other belongings. (They still can but it does make it harder.) It is cheap and easy to incorporate and I can't think of many downsides other than trying to save the $50....

When every one else does it. (-1)

Anonymous Coward | about 2 years ago | (#41323785)

.. As a tax shelter.

Setup shell corp that owns your assets, rent your property from yourself. Reap the savings.*

*Upper income citizens only. We can't have the poor (middle class) saving money and dodging taxes, can we?

Re:When every one else does it. (0)

Anonymous Coward | about 2 years ago | (#41324169)

actually you can and if you do it in some cheap country like Panama it will cost you around $600/year ($50/month) i am sure you could save more in taxes whatever you do than $50/month cost even if you are dirt-poor

Re:When every one else does it. (1)

F34nor (321515) | about 2 years ago | (#41324197)

Or a trust.

good times (1)

Anonymous Coward | about 2 years ago | (#41323801)

I incorporated when I decided that I wanted to file small business tax documents, claiming my expenses to and from the workplace (and my expenses included everything from clothing to gas).

Check out Schedule C - filing as a sole proprietorship:

http://en.wikipedia.org/wiki/IRS_tax_forms#1040
http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Depends... (1)

Anonymous Coward | about 2 years ago | (#41323803)

It really does depend. It depends on multiple factors. These include: where you are (and thus the legal situation); how much money you are thinking you will make; how much tax you'll have to pay on that money as an individual as compared to a corporation; whether you need the limited liability that incorporation offers; etc.

Maybe a good idea to talk to a lawyer if you aren't sure. Also, there is probably a lot of information on the web for where you are. Maybe also talk to your local chamber of commerce?

Personally, as an Australian I wouldn't bother incorporating until the amount of income from my free lancing work reached enough that it would be worthwhile tax-wise to incorporate. Otherwise everything is just easier as a sole propriator. In Australia you also have to worry about GST, my advice would be to not register until you have to (it's just easier). Though you will get people who are stupid and think that you have to ask for GST, you don't if you're not registered. Just make a note on the invoice that the amount does not include GST.

m m

Say what you mean... (1)

Frosty Piss (770223) | about 2 years ago | (#41323811)

...by doing some consulting work (read mobile app development)

If that's what you mean whay not just say it?

...by doing some mobile app development

Re:Say what you mean... (0)

Anonymous Coward | about 2 years ago | (#41323865)

He's inferring that it is not related to his regular employment. No need to be pedantic.

Re:Say what you mean... (3, Informative)

onkelonkel (560274) | about 2 years ago | (#41324239)

He's _implying_ that it is not related to his regular employment. Need to be pedantic.

Re:Say what you mean... (0)

Anonymous Coward | about 2 years ago | (#41324577)

1. "Not related to his regular employment" is called "freelancing" or "development on the side." Consulting is a whole different ball game and pretending to be something you're not doesn't earn you much respect.

2. In the context of the question, it's doubly important to be honest about the type of work. Makes a big difference in terms of taxes (and liability in some countries), what you can and can't deduct, who you can employ, etc.

Taxes (4, Informative)

headhot (137860) | about 2 years ago | (#41323817)

I'm an S-corp and there are huge benefits in tax write offs compared to filing as a 1099, but filing as an S-corp sucks, an you will need an accountant. I would go to an S-corp as soon as you think you are making enough to pay and accountant about $1k a year or are buying or spending good money on anything that could be considered work related, i.e. computers, cell phones, car expenses.
You may just want to consult an accountant on the decision as they can tell you the exact benefits after looking at your situation.

Re:Taxes (2, Informative)

Anonymous Coward | about 2 years ago | (#41323959)

S corp you have to pay yourself a salary, it's not as good as it looks on the surface. Just do an LLC, get general liability and you're good.

And you don't need an accountant to do an S Corp either. All the tax packages can do a 1120S for you pretty easily. However, you don't "start" as an S-Corp, you start as a C-Corp and have to file an S-Corp election with the IRS.

Do you really know anything you're trying to comment about OP?

Re:Taxes (2)

headhot (137860) | about 2 years ago | (#41324415)

A salary is not the only way to take income in as an S-Corp. Yes, you do have to take a salary, and pay income and FICA, but you can also take profit distributions that don't have FICA. You can also pay your salary once a year to reduce the paperwork.

But compared to a 1099 there are way more filings. Federal, State, and Local for personal and business, for taxes, unemployment, FICA. Most are quarterly. So yea, I do know what I'm talking about.

Your right, you don't need an accountant, but if you screw up a filling your going to be dealing with the tax problems forever.

Re:Taxes (4, Informative)

DJ Jones (997846) | about 2 years ago | (#41324027)

Filing as an LLC is much easier depending on what US state you are in. LLC's were designed for this. I own several of them. I recommend filing in Delaware. It's very easy and you get charged a flat tax of $250 a year. If you do business in your own state you still have to pay state tax there but for me, I run an internet business and have no office or servers in my own state so one could argue I only need to pay taxes in Delaware.

There are two major benefits to incorporating as I see it, 1) it allows you to write off expenses against your earnings on your taxes 2) it allows you to protect your personal assets. Now, you could just file your taxes as a DBA with a schedule C without incorporating which would allow you to write off expenses without the corporation but without a corporation, if you get sued, they could come after your house, your car, your savings accounts. It's almost an insurance policy. That and it gives you a little more legitimacy with the IRS and other businesses.

To answer the original post: if you are making enough money to pay $250 a year in tax for a corporation, you should probably file for incorporation.

Re:Taxes (1)

Aquitaine (102097) | about 2 years ago | (#41324751)

+1 for an LLC in DE. I am originally from DE so set up our company there but now live in elsewhere and still keep my DE LLC.

DE is just very easy to do business with. They're responsive and they're inexpensive. If your needs are simple then you don't need to go the extra step of being an S-Corporation (this may not be advisable for other reasons; that's a decision that you should have an accountant and/or a tax lawyer for). But your taxes won't change - you'll still do personal income taxes and a schedule C as an LLC. No separate corporate taxes or corporate tax rate, but the 'down side' is that every dollar you make is taxed as your personal income. For a small business this is usually a fair trade off as you want to be able to put money in and take money out very easily.

Re:Taxes (0)

Anonymous Coward | about 2 years ago | (#41324385)

You can write off cell phones, car expenses, etc as a 1099 too. The real advantage of a corp is that you pay yourself a salary, which is taxed at one rate with 7.5% also paid by the corp - but the rest of the money is taxed at the corp tax rate, which gives you a real break. And don't fret an accountant - you may spend some $'s but in the end a good accountant will save you much more.

Re:Taxes (0)

Anonymous Coward | about 2 years ago | (#41324493)

Registering as an LLC in Colorado only required $50 and 10 minutes on the Secretary of State's website. Very easy to do. I'm not sure of the tax benefits of S-Corp over LLC.

maybe (0)

Anonymous Coward | about 2 years ago | (#41323851)

If you just want to take the revenue as personable income right away then it doesn't make sense to incorporate. If you want to leave the money in the business to be taxed at a lower rate then yes do incorporate. The running costs of doing an extra set of books..accounting etc are there so if its just an occasional side project then I wouldn't do it.

Are you at risk? (1)

Lawrence_Bird (67278) | about 2 years ago | (#41323861)

Do you believe you can be sue by someone purchasing your applications? Do you believe you might be on the short end of litigation by another developer who claims you copied his trademark or patent?

The problem with incorporation is the paperwork nightmare that goes with it and if you draw a salary, the need to do more for soc. sec, medicare, unemplyment, etc.

If you can treat the income from the work as instead your savings you might avoid much of that by drawing no salary 'until such a time as revenues reach X' where X is some stupid large number. When you are through with developing you can do a return of capital to the shareholders and dissolve the corporation.

Of course, always check with one of your lawyer friends first.

When the rights of corporations exceed a person's (0)

Anonymous Coward | about 2 years ago | (#41323871)

When the rights of corporations exceed a person's rights, then you should incorporate.

When is it a good idea to ask slashdot? (3, Insightful)

larry bagina (561269) | about 2 years ago | (#41323897)

Not when it involves legal matters. Talk to an accountant or a lawyer.

Seek advice (not from slashdot) (4, Informative)

killmenow (184444) | about 2 years ago | (#41323903)

I've been running my own consulting gig via an LLC since 2006. It does have some advantages and is cheap to set up. (Cost me $125 filing fee with the secretary of state's office.) Two things I'd advise:

1. Talk to your insurance agent and buy an umbrella/general liability insurance policy. There's an "errors & omissions" kind of policy that might be perfect. But a general liability may suit you also (it's what I have). But you should definitely talk to the agent about it.

2. Talk to an attorney. Pay $75-$100 for a one-time consultation with an attorney and get their advice on what kind of business model suits you best. The LLC worked best for me. It may be right for you but I can't say. Maybe there are specific advantages to an S-Corp in your case. I don't know. But an attorney you pay to help you make the decision should.

You may also want to talk to an accountant about it. I skipped that part and many people I know in similar situations think I'm an idiot for doing so.

My Personal Experience (5, Insightful)

jchawk (127686) | about 2 years ago | (#41323941)

I've owned and maintained an LLC for about the last 3 years. I own 99% of it and 1% is controlled by my father. I did this so I could continue to maintain the protection that the LLC structure offers. In the event that I would ever get sued my personal assets should be shielded from the lawsuit. (Not that I plan to get sued but you can never be too careful).

I was able to incorporate in the State of Pennsylvania (where I live) for a filing fee of $125. I was also able to to register for an EIN with the IRS for free. From there I opened a bank account and got moving. I do limited consulting from time to time as well as manage a couple of servers for some folks. I keep everything totally separate. At the end of the year I work with a local accountant who charges me $125 to $200 to complete my LLC taxes with the State and the Fed.

There are some inherent benefits to having an LLC. I'm able to purchase business equipment such as laptops, computers, supplies, etc... with pre-tax money which lets my dollars go much further.

Additionally other businesses automatically seem to take me more seriously when I reach out to them for software, equipment, services or as a potential client.

If you are already tracking your spending it's honestly not a lot of work. You just have to keep track of your income and expense for your business. If you are small a spreadsheet and some folders for paperwork will work just fine.

The LLC structure has been extremely easy for me to manage and most months I don't even think about it. The only advice I have is avoid those "we incorporate you" websites. Chances are pretty good if you do a little bit of research you will be more then able to handle this yourself. Also reach out to the state that you are incorporating in, you'll be surprised at how helpful they can be with the process.

Let me know if you have any questions or concerns, I'm happy to help.

Generally, Yes (4, Informative)

Greyfox (87712) | about 2 years ago | (#41323943)

Having a corporation confers a lot of tax advantages. My first boss, 23 years ago now, was the owner of the business and he treated that thing like a piggy bank. Which, really, it was. If he could get away with the company owning a resource (like his cars) he'd do that. So a lot of his daily expenses were paid for by the company. That meant, among other things, he didn't pay income taxes on the income that paid for his cars. There are also tricks to structure at least some of your income to be taxed at a lower rate.

The down side is that it takes a lot of paperwork, a relationship with a lawyer and an accountant and your taxes get a lot more complicated. Also, the IRS is well aware that a corporation makes a good tax dodge, so you have to be careful to keep good records and not run afoul of them. And be able to prove to them that you're on the level when they come asking. They probably WILL come asking.

For mobile apps... (1)

nighthawk243 (2557486) | about 2 years ago | (#41323953)

I don't see it making too much sense unless you plan on becoming huge at it (and actually becoming a company with other people on your payroll as employees). Really, as long as you don't screw up and mishandle customer's private data; you shouldn't be at too much risk of legal liability. In your case, it would probably just be for tax purposes if it works out to be better that way.

Ask a Lawyer (5, Interesting)

swaltman (1442309) | about 2 years ago | (#41323993)

When I asked my lawyer this question, his advice was that for a one-man shop, incorporating does not significantly affect your liability. If you are negligent, then they can come after you, whether or not you have incorporated. I know this differs from the word on the street. I made him say it several times, because it was not the answer I expected. Where it makes a difference is if you have partners. If your partner is negligent, then a corporation or LLC can shield you. BTW, he did not bill me for that consultation. There is really no excuse for asking a large group of non-lawyers instead of calling one on the phone for a few minutes.

A legal answer (5, Informative)

gavron (1300111) | about 2 years ago | (#41323997)

24 people have posted before I did. They all had some input. From a US Legal perspective none of them adressed the real issue.

"When to incorporate?" -- When you need to.

The purpose of a corporation is to create an "entity" (some mistakenly call this "person") that is the true wage earner,
whose assets are the only ones impacted by the acts of the corporation.

If you're a sole practitioner, and every dollar that comes in goes to you, a corporation will not shield your personal assets from anything.

For a sole practitioner to effectively use a corporation you'd need to
- make sure the corporation collects all fees and pays all expenses related to the consulting work AND NOTHING ELSE
- make sure the corporation 1099s you or W-2s you or in some way tax-wise indicates it pays you legal wages, not under-table money transfers
- never comingle coporate resources and your own needs (in other words, no corporate paying your gasoline refill enroute to the customer or your lunch) ...and finally... the expensive part...
Have D&O E&O insurance.

If you're willing to go through all that, a corporation can shield your assets.

For one guy, far cheaper not to be a screwup and not get sued, and not mess with any of that.

The law is pretty clear. If it's a separate entity ("person") then it needs to be separate. If you keep it so, and keep it insured, it will protect you.

E
P.S. All I've said is specific to United States corporation and contract law.

This. (3)

sirwired (27582) | about 2 years ago | (#41324211)

People mistakenly believe that incorporation is some sort of "magic wand" that reduces your tax liability and limits legal liability. Unless you meet the VERY STRICT rules for keeping the corporation at an appropriate "arms length" it does none of those things. (And it really doesn't do much for your tax liability even if you do incorporate.) Really, if you are just getting started on your own, insurance is a LOT less of a time sink than incorporation, and time is something any new entrepreneur does not have nearly enough of.

Re:This. (0)

Anonymous Coward | about 2 years ago | (#41324479)

Except that it very much is a magic wand that reduces your tax and legal liability.

If you're rich.

The only barrier is having enough money to pay an a accountant/lawyer to setup the paperwork. That is all. Full stop.
The rich really are a privileged class that enjoy protections not available to the general public. All it takes is money.

Re:This. (2)

angel'o'sphere (80593) | about 2 years ago | (#41324553)

It is a difference wether you pay *once* taxes for $100,000 freelance income *or* pay in two chunks: tax for your $50,000 salary *and* tax fro the $50,000 earnings of your company (which has payed you $50,000 in wages).
Bottom line that easy saves $15,000 if not more. See my other post where I emphasized on the effect it has when you let the company *sleep* a year.

Re:A legal answer (1)

Anonymous Coward | about 2 years ago | (#41324629)

For a sole practitioner to effectively use a corporation you'd need to...

... do exactly the same things you'd need to do if you're NOT a sole practitioner and have multiple partners and employees.

If you run a corporation with partners and treat it like your personal piggy bank, then you will lose your protections as well. If you run a corporation the way it's intended to be run - i.e., as a separate legal entity - then it does not matter how many people are employees of that corporation - 1 or 1000.

It is absolutely important the people understand that they can't just "wave a magic wand" and get protection, but it's also important that they understand that if they get competent advice from an accountant and attorney, and they follow the very simple rules that the lawyers and accountants will lay out, incorporation is a perfectly good way to protect personal assets, even if you're a sole proprietor/practitioner.

Set up an LLC (0)

Anonymous Coward | about 2 years ago | (#41324061)

At this stage in your corporate development, assuming you're in a jurisdiction that allows them, you should consider setting up a Limited Liability Corporation (LLC) or possibly an S-Corp. They offer many of the advantages of a corporation (limited liability and a legal entity to hold assets/insurance etc.) as well as a partnership/sole proprietorship (pass through taxation, control). The paperwork is usually very simple depending on your appetite for that sort of a thing (i'm a bad reference for that, i'm a CPA)

If you ever outgrow the LLC/S-Corp, you can do something more complicated and get more lawyers and accountants involved.

Don't Let Overhead Eat You (2)

troutner (1949104) | about 2 years ago | (#41324077)

I've had a couple businesses where I incorporated right off the bat. Ultimately, it was expensive and the overhead hurt my business. Like you, I am in a consulting business at the moment. Three months into it, I still have not registered the business.

I don't need the overhead, I don't need the liability protection, and I don't need to waste time right now filling out forms and keeping the State happy. I need to focus on keeping my customers happy and making money. If I manage to net $10K or more this year on this side business, then I'll register. Otherwise I would just be making a lot of extra work for myself.

Make sure that your business is going to succeed - because unregistering a corporation is expensive and usually even more time consuming that registering it in the first place.

Take this with a grain of salt... (1)

samazon (2601193) | about 2 years ago | (#41324123)

I do some freelance work in addition to my 8-5, and I will not consider forming a corporation or LLC any time soon. When I was contracting as a campaign employee, I considered doing so for tax reasons - however, it's easier to just file an "extra income" form (I had a W-4 on the campaign) and make sure you track your purchases. Between buying new software, a new computer, and other business-related expenses (and a little extra withholding from my real job) I don't pay much more in taxes than I normally would - itemizing expenses, of course - although I don't get anything back from the government at the end of the year (I did when I was not doing side projects). It makes for a more annoying tax filing, but nothing a reasonably intelligent person can't handle alone. I only make (at most) 33% of my "regular" income doing freelance (so let's say I make $30,000 a year, and take three freelance jobs for $3000 each per year) and it is neither a "considerable" amount of money compared to what I make nor is what I do something that I could potentially be sued over. Also, I don't own a house, car, etc. so I have nothing worth taking.

If you'll be making a lot of money or doing something that could get you sued, get an attorney and an accountant.

Corporations are evil (4, Funny)

swillden (191260) | about 2 years ago | (#41324135)

If you read slashdot, you know that corporations are evil. So, clearly, the time to incorporate is when you decide to become evil.

Yes (4, Informative)

SupplyMission (1005737) | about 2 years ago | (#41324147)

If you are working as a consultant, then the biggest advantage of incorporating will be in tax savings.

In Canada (Ontario specifically) there is a break-even point around $42k/yr income, where the personal income tax and corporate income tax (and accountant fees, etc.) you pay will be approximately equal. Above $42k/yr income, the corporate tax will become less and less compared to personal tax. This is due to the fact that the corporate tax rate is fixed at 16.5% (until $500k or $1M annual income... I can't recall) while personal tax rates have brackets that increase as you make more money.

To take an example from my past, the last year before I incorporated I made roughly $86,000 and paid about $22,000 in personal income taxes. The accountant that helped me incorporate did some calculating, and if I were incorporated, the corp would have had to pay only about $13,000-14,000 in taxes.

There are some costs associated with running a corporation. There are the initial costs of setting it up, usually between $2000-4000 for lawyers and accountants. Then annually, you will probably have an accountant prepare your corporate taxes, which will cost around $750-2000 depending on who does it and how organized your paperwork is. These are extra hassles that some people find unpalatable, and it is a bit of extra administrative work on your part, but altogether, it saves you thousands and is very much worth it. (Unless you have some kind of ADHD and psychologically cannot deal with paperwork.)

Another tax saving tool available in Canada is that you can make $50k/yr in dividend income, tax free. Therefore, if you and your significant other are both part owners in your newly formed corp, then you can essentially have a combined household (personal) income of $100k/yr, tax free because your corp will pay out dividends to its owners, rather than salary (which is all taxable). You will probably not make exactly $100k/yr tax free (but it will still be around $95k or $98k) because in order to take advantage of various tax credits you have to show some personal income. How this is works is that, whenever you need money from your corp, you just withdraw it. At the end of your fiscal year, you and your accountant will figure out how to label those withdrawals, be it dividends, salary, whatever, to maximize the tax savings. That is how I have been doing it in Canada, anyway, and your accountant will be more familiar with how this stuff works in your area.

The best thing you can do (aside from asking the experts on Slashdot, of course) is to go see an accountant who deals with corporate stuff. Explain to him or her what you are thinking about doing and outline your current situation. Using your 2011 net income as an example, they can then draw up a spreadsheet for you, showing what would be your taxes and other numbers if you had been incorporated in 2011. This will let you know with little uncertainty what is your best course of action.

There are other benefits that come with having a corporation, your corp can purchase the equipment (e.g. laptops, mobile devices for testing, etc.) that you will use to do the service that the corporation sells. This can be recorded as an expense of the corp, which reduces the corporate taxes. In contrast if you bought equipment personally, it would not affect your tax situation at all. This is nice if you like toys, and would like some extra reasons to rationalize their purchase.

In summary, if you plan to make more than $42k (*) this year from your moon-lighting activities, just get it done already.

* $42k, or whatever is the break-even number for the tax system you live in.

LLC now, Sub S corp later (0)

Anonymous Coward | about 2 years ago | (#41324149)

The details on how to do so vary from state to state, but there is a general guide. You want to form an LLC right now. This is easy to do and cheap. It prevents your personal assets from being seized in the event of bankruptcy or lawsuit against the business.

If you make more than 20K a year, you can save social security taxes by becoming a Sub S corporation. As an LLC, you have to pay 14 percent of all your income to social security. As a Corporation, you can claim a portion of the income as a salary and pay the Social Security tax on it. The rest of your income, you can claim as profit, and not pay the social security taxes, but only pay income tax on it. It's best to have a CPA help you through the transition, though, so there is a tradeoff between the amount saved by the sub S corp, and the amount you have to pay a professional for help.

2 situations (1)

sribe (304414) | about 2 years ago | (#41324165)

1) You are hiring employees.

2) You are consistently making $100,000/year or more net, and are in a state where the cost of maintaining a corporation is not burdensome. I'm not going to give legal advice here, consult a CPA and find out how at that level an S corp can save you money on taxes.

You will get many people telling you to incorporate in order to limit your personal liability and protect your assets. That is mostly bullshit--when you are a 1-person corporation it is extremely easy for someone whom your "corporation" harms to "pierce the corporate veil" by, essentially (legal stuff grossly simplified here) showing that you were acting as your individual self rather than as a true corporate officer. However, back to my #1 above, when you have employees, and one of them screws up, then you really do get useful protection.

Re:2 situations (0)

Anonymous Coward | about 2 years ago | (#41324549)

Bad advice.

If you maintain a separation between corporate and personal assets, it's very hard for someone to "pierce the corporate veil."

Generally this piercing requires all 3 of the following conditions to be true:
1) There was no true distinction between corporate and personal assets & finances - e.g., paying personal bills with the company checkbook.
2) The actions that harmed someone were wrongful or fraudulent - e.g., you built a home for a customer out of scrap wood that was infested with termites.
3) The creditors as a result suffer an unjust cost - e.g., "I paid you to build me a house, and a week after I took ownership, the fucking thing fell down."

If you operate the business as a separate entitiy, a court will be hard-pressed to justify piercing the veil. It has nothing to do with "acting as your individual self," and everything to do with maintaining a distinct and legal separation between the operations of the business and your own personal finances. Of course you act as yourself - the question is, did "yourself" manage the business as if it were a separate financial entity and keep a clear division between business and personal assets?

To the OP: You want to incorporate (or LLC, or S-Corp - talk to an actual lawyer, there are options, and some may be easier or better suited to your particular situation) when you have sufficient personal assets to protect from the risks you take as a business owner. Family to support, kids to send to college? House? Car? Retirement savings? You want to protect all of these. Think of incorporation as a form of insurance (though you should also have liability insurance) - if things go badly, you don't want to lose your entire life's savings and your home.

If all you own in the world is a handful of books, a dozen music CDs, and a futon you sleep on... then it's probably not necessary at this point. But if you have anything more than that, you probably want to consider protecting those assets - a small cost for incorporation and a bit of work to keep your personal and business finances separate, and even if your business fails, your personal assets will be substantially protected from creditors.

Advantages and disadvantages (1)

DRichardHipp (995880) | about 2 years ago | (#41324203)

Advantages:
  • (1) Your corporation will have a separate tax ID number, meaning that you won't have to give your your SSN to clients.
  • (2) Your personal assets are better protected from liability lawsuits
  • (3) Clients tend to take you more seriously if you are a corporation rather than a sole proprietor.

Disadvantages:

  • (1) You have two income tax returns to file instead of just one. And the corporate return is considerably more complicated and jargon-rich than the 1040 you are used to. You can try to do the corporate income tax return yourself if you are masochist, but I would recommend paying $500-$1000 to get an income tax profession to do it for you. Getting the corporate return prepared professionally might also help you to avoid unwanted attention from the IRS.
  • (2) There is a lot more paperwork. You will have monthly and quarterly filings with various local, state, and federal entities. I recommend that you keep a calendar of what needs to be filed, with whom, and when.
  • (3) You will need new bank accounts. (Co-mingling of personal and corporate funds is not allowed.) Banks charge higher fees and pay less interest and offer fewer fraud protection guarantees to corporate accounts.

It costs $2'000 per year (1)

holophrastic (221104) | about 2 years ago | (#41324207)

up to $2K to incorporate, and up to $2K in accountants fees annually. But that's about it (in Canada). It's a bit of a nuisance in that you've got to spend about 5 hours annually with simple paperwork and phone calls and keeping government records up to date when you move.

So the answer is simple. When you can write-off $10K annually, you'll save yourself the $2K in taxes alone. Between home offices, client meals, car allowances and more, it's all very quickly worthwhile.

Re:It costs $2'000 per year (0)

Anonymous Coward | about 2 years ago | (#41324387)

Unless you are a rather large company, you will not need to pay $2,000 a year in Canada. I ran a company that did ~$1,000,000 in retail sales per year and our accountant charged $500 and threw in personal taxes for myself and the partner. Mind you, our personal taxes were simple and he may not have been the best accountant (but he was fully certified), but $2k is very high for a single entity corporation.

The hardest part of it is to ensure you actually keep the meeting books updated, which we were terrible at.

Re:It costs $2'000 per year (1)

holophrastic (221104) | about 2 years ago | (#41324461)

certainly $2K is high. but between the accountant, and the corporate lawyer (to cover the meeting books, the shares, the partnership docs, various NDAs, and the occasional contract), and being in a big city, even my tiny $200'000 service-based single-man company winds up spending $2K quite easily. It's not 3, but it's definitely more than 1.

Corporations are for assets (1)

PPH (736903) | about 2 years ago | (#41324219)

There are other (less expensive) means of doing so than a full blown corporation. But they serve little use for someone just earning an income.

Easy (1)

Hillgiant (916436) | about 2 years ago | (#41324227)

When your accountant thinks it's a good idea. Don't have an accountant? Don't think you need one? Then you don't need to be incorporated.

When Mitt Romney wins the election (1)

rossdee (243626) | about 2 years ago | (#41324229)

Corporations are people

Re:When Mitt Romney wins the election (0)

Anonymous Coward | about 2 years ago | (#41324361)

Corporations are recognized as people today. Obama hasn't changed that.
 
Oh, I see, you're one of those people who think Obama is actually making changes for the man on the street? LOLz!! Good one. Thanks for the vote, sucker.

Tax (1)

flyingfsck (986395) | about 2 years ago | (#41324247)

In Canada at least, for a revenue stream of $100,000, the small business tax rate is about half the personal tax rate. So if you think that you could perchance use $15,000 or so yourself, instead of giving it to the tax man, then you should incorporate. If however, you think that the federal government will put your money to better use, then don't.

Which country? (0)

Anonymous Coward | about 2 years ago | (#41324265)

I guess it depends which country you live in?

The article poster didnt say which country he lives in.

It matters because there are significant differences between countries in corporation tax rates (0% - 35%) and dividend rules, beneficial loan rules and whether it is even allowed at all (some countries have rules to deter of frustrate small one man companies from benefiting from the same company tax regime as larger multi-person companies).

And I suppose also whether you incorporate the company in the same country as you live in is another parameter.

In some countries it makes a lot of sense to incorporate your company in a lower corporation tax company, because then you wont get taxed at all on dividend income if you dont remit it. (Eg if your domicile or local tax rules mean that you do not have to pay tax on foreign income).

The person who said something about limited liability there can be advantages to being incorporated in other jurisdictions on that front also (asset protection).

If you want to get fancy and have enough income to travel and live an expat life-style by personal election, go read up on five flags theory. http://en.wikipedia.org/wiki/Perpetual_traveler (With the caveat that if you have a US passport your first and perhaps insurmountable challenge is to get rid of it or the US IRS will tax you even if you dont live in the US, unlike any other country pretty much.)

You basically either have two choices, or none (1)

Ken Hall (40554) | about 2 years ago | (#41324287)

This assumes you're in the US, I don't know about elsewhere.

I was a consultant for 9 years. When I set up initially, I had two options: Let the company that contracted me pay me on a W2, handle the taxes, and take a cut for their trouble, or incorporate and let them pay me corp-to-corp.

Many companies will not pay a contractor on a 1099, which is how you pay someone for services if they're not an employee. There are too many potential IRS headaches if the contractor doesn't handle things properly on his end, especially when large sums are involved. It's okay for small amounts on one-time jobs, but there's a big risk that a 1099 contractor could be considered an employee under certain rules, and then all kinds of unexpected problems kick in. So many companies avoid the whole headache by only dealing with corporations. When one corporation pays another, the payer is basically off the hook for tax-reporting responsibility, it all falls on the payee.

I set up an S-corporation, which is a simpler option than many others, although my accountant (who came in late) said I might have been better off with an LLC. In any case, the biggest headache was that I set it up in NJ, which has screwy tax laws for S-corps. I'm still trying to extricate myself from that, and the corp closed over 5 years ago.

So suggestion: If you're going to (or required to) incorporate, do it through an accountant or a registration service, set it up in a corp-friendly state like Delaware and use a registered agent, and find a good CPA to help you through the tax pitfalls. Mine was decent, but endlessly distracted by more lucrative clients, so I ended up paying more in taxes than I needed to, and it took me 5 years to discover that.

A good friend of mine who was in business long before I was avoided incorporating till it was absolutely necessary. What finally convinced him he needed to was when NJ decided to consider his part-time babysitter an employee of his business, and require him to pay unemployment tax for her. At that point he decided splitting his business and personal affairs made sense. YMMV.

professionals (1)

Anonymous Coward | about 2 years ago | (#41324295)

ask a good attorney and accountant, not slashdot

Maybe you ... (1)

ZonkerWilliam (953437) | about 2 years ago | (#41324335)

Should be asking a lawyer? They can give you a better prepared answer geared to your unique issues?

If you plan to do it as your primary source of... (0)

Anonymous Coward | about 2 years ago | (#41324337)

...income and you want to protect your assets more fully.

Creating a Chapter-S corporation allows you to pay yourself in payroll salary and in distributions - with the caveat that the salary portion must represent a reasonable salary for you work.

This means that you only pay the government payroll taxes on the salary part, not on the distribution (think of the distribution as a profit sharing plan with yourself.) You will pay federal income tax on both, but income tax is all you pay on the distribution portion.

I.e. If your consulting brings in $160k in a year (and ignoring all the costs to you involved) and you give yourself that money, you could pay yourself a salary of $80k a year and pay yourself $80k in distributions. So you pay payroll taxes on 80k and you don't on the other 80k. 80k is a reasonable salary for most types of jobs (in this example - a software engineer.)

Now, IANAL, and I recommend you get a CPA to walk you through the process - they are usually the easiest way to incorporate and get tax advice (plus they usually have nice Excel worksheets that make putting your quarterly taxes aside quite trivial.)

My company's CPA charges $75 per quarter to prepare our quarterly taxes and $250 for the end of year tax preparation, and he gives us lots of advice on how to manage our money, how to structure costs, manage our tax burdens, et cetera. Money well spent until I can actually afford a CFO.

My Opinion on this (1)

RobertLTux (260313) | about 2 years ago | (#41324441)

as soon as you have an accountant and a lawyer on a semi regular basis you should have a Company (in fact both of them will suggest same).

Having a company of some sorts also makes it easier to get PAID even if your Cat is the Marketing Director and Your Dog is your Security Director.

i think asking the question is most likely properly answered with "Three days ago would have been smart"

Costs versus tax savings (4, Interesting)

angel'o'sphere (80593) | about 2 years ago | (#41324449)

I did that a while ago.

Before that I workd as "freelancer". That ment a year with a high income led to high taxes. A year with no income had no benefit (well, payed no taxes ofc ...)

Now with my incorporation, the company works as a buffer, safing taxes in the long run.

I'm now no longer "freelancer" but "self employed". My company pays me small wages. So after wages, pension funds and internet/phone bills, the rest teh company makes is profit and taxed. (But to a significantly lower tax rate than above).

From that wages I pay income taxes (in your case you had likely two times wages, once from your original employer and in addition now from your own company).

However: if your company stops app development for a year, and continues paying you, it makes a loss in that year (on top of paying no taxes ofc). That loss, even from several years, is carried into the next year. Your personal taxes from your double income are not affected ofc.

Example: before incorporation I make $100,000 profit like this:
2007: $100000 -> 45,000 tax
2008: $85000 -> 39,000 tax
2009: $0 // sabatical -> 0 Tax.
2100: $35,000 // only worked half a year -> $6000 Tax

Now my personal income and company is something like this:

2007: $38,000 -> $9,000 Tax / $62,000 -> $19000 Tax
2008: $38,000 -> $9,000 Tax / $47,000 -> $14000 Tax
2009: $38,000 -> $9,000 / -$38,000 no Tax
2010: $38,000 -> $9,000 / (-38,000 from previsous year plus $35,000 earnings this year) - $38,000 wages -> additional $3000 loss -> no taxes
2011: $38,000 -> $9,000 / company starts now with -$41,000 loss.

Well, that is a bit simplified and the numbers are made up, but as a general idea I guess you get it.

You see the total taxes payed is far lower (or in other words, the remaining total money you "own" is much more).

Otoh you have costs to run the company, likely tax counceling, reporting, bookkeeping etc.

You only have to balance, founding costs and running costs of the company versus the buffering effect of the company (saved taxes).

Will all the cash flows be taken out personally? (2)

eric31415927 (861917) | about 2 years ago | (#41324505)

The incentive to incorporate is lessened if you plan on spending all of the cash generated by the business. For then you would have to report all of the income at graduated personal income tax rates.

If you plan to leave cash in the business and not use it personally right away, then incorporating makes much more sense. Here, the amount of combined personal + corporate taxes in the near term would be smaller. The time value of money in the delay of paying taxes works in your favour. What might the business do with its retained earnings? It could invest in assets to grow its own business. It could invest in other businesses.

Do it RIGHT (0)

Anonymous Coward | about 2 years ago | (#41324509)

This depends so much on where you live, what you are doing exactly, and how you will manage yourself, that it's nigh impossible to tell you when the right time is.

For example, due to the minimum investment and minimum operating cost (taxes, notaries, etc), in my country it is currently not considered to be monetarily beneficial to incorporate unless you have a minimum of $150K revenue per year. The minimum investment is being dropped soon, so that makes it *much* easier, but you still have a few K USD per year in basic costs. Find out what the costs are for you, are they worth it ?

For some, even if they have less revenue in a year, it's easily worth it because many liability insurance agencies (at least over here) refuse to insure software development. As such, you have to have the limited liability of incorporating. But if you can get the liability insured, that might be cheaper than incorporating.

There's also the way liability works that differs between areas. Over here, for example, you are still personally liable for everything that happens in the first year of incorporating. And if you mess up significantly (negligence) or "should have known" (f.x. made debts while your income prognoses are dubious), you're still personally liable. The same goes for not having a 100% proper by the book administration, filing your taxes on time, publishing your yearly figures to the chamber of commerce, etc etc. You need to figure out exactly what is needed, and you need to follow those rules to the letter.

Of course, you can put assets in your company. First you need to figure out what assets you can legally put in the company's name (pre income tax spending, huzzah), because if you put something in the company's name that you shouldn't, that might just be tax fraud. You can try to play the system, but as a rule of thumb, don't put anything in the company you don't *need* for work. Again, rules differ depending on where you are at.

You should also be aware that anything you put in the company is subject to being lost. If you put your house on your company's name (can be tricky by itself), you mess up, and somebody comes after your company, you could lose the house.

Do yourself a favor: Consult your chamber of commerce, read up on your local laws (you'll need it), talk to a lawyer and/or accountant. If you're serious about this, spending a few $K USD now to make sure you get it right will save you a lot of grief and money later.

Subchapter S-Corp (0)

Anonymous Coward | about 2 years ago | (#41324519)

Really if you are going to incorporate and it is just you I would recommend a Subchapter S Corporation.
An LLC is much more expensive to form as it requires publishing in 2 trade publications with the announcement of the formation of the corporation.
A Subchapter S Corp allows you to borrow money from your own corporation without having to pay social security/medicare/etc. if you take it as a dispersement. The other corporations LLC and a tradional Corporation do not allow for this. You will have to file quaterly taxes. Any losses from the business are refected on your personal tax return at the end of the year for income tax. You also will have to keep annual "meeting notes" as well on file even if you are the soul person running it as that is dictated by the SEC.

Traditional corporations have a much higher level of paperwork requirements then an LLC LLP or Subchapter S Corp.

I can tell you from experience any tax paperwork or paperwork that goes to the state or the SEC save yourself headaches and send it certified mail return receipt only. The common excuse heard is "they are not responsible for mail" when you send in paperwork that goes missing.

Additionally each state has their own incorporation laws, you will need to check your local state laws. Delaware for example is vry corporation friendly however if you do not live in Delaware and lived in New York you would have to pay taxes to both Delaware and New York additionally you would need to apply for permits to operate in New York.

Total cost for an LLC with a lawyer is about $2,500.00 Total cost for a Subchapter S Corp with lawyer is about $1,500 - $2,000 because you do not have the added cost of publication.

Talk to a CPA (1)

wcrowe (94389) | about 2 years ago | (#41324573)

It depends on a few factors such as the laws and regulations of your state, how much income you're making, etc. It's probably a good idea to hire a CPA. A good CPA can show you the tax advantages to incorporating and help you set up your corporation. In my state, it only costs $10 to start up a corporation, and I was able to outsource the payroll (even if you're the only employee, you're still paying yourself) to a company who would handle all the state and federal taxes and filings for about $60/month (this is worth it because there can be hefty fines if you miss a filing or make a mistake).

It's definitely a good idea if you have the income to justify it.

When? (2)

gestalt_n_pepper (991155) | about 2 years ago | (#41324729)

After breakfast, certainly.

Thanks all! (2)

stairmaster (2652939) | about 2 years ago | (#41324753)

Thanks you all for your opinions. I definitely will speak with lawyer and accountant friends but it's very helpful to hear about your experiences with the matter. Again thank you very much!
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