Friday, June 22, 2012
DON'T LISTEN TO BAD ADVICE
Just thought I would repeat some commentary from my publication THE SCHEDULE C NOTEBOOK -
I believe it is bad advice to tell ALL taxpayers who have a Schedule C business to incorporate. There is no tax advice that applies to all businesses in all situations (except don’t cheat). The decision to incorporate a business requires careful review of all the specific facts and circumstances of the individual situation. And taxes are not the only consideration. In a majority of cases it is not financially beneficial, either in the short or long term, to incorporate.
While incorporating will certainly reduce one's 1040 audit risk, it is very often not the best idea for the average sole proprietorship. Incorporation can generate much more paperwork, recordkeeping, federal and state tax filings, costs, and general all-round "agita" than it is worth.
For one thing, like a marriage, it may be relatively cheap to "get into" a corporation, but it can be very expensive to "get out of".
There are indeed times when it is better financially to incorporate a one-person business, especially when excessive health insurance and other employee benefit costs are involved. But certainly not in all cases.
Some say the decision to incorporate is a “no-brainer”. There is very little, if anything, about tax law that is a no-brainer – especially when it comes to business taxes. That is why tax professionals exist. The decision to incorporate is by no means a “no-brainer”. It involves a lot of brain work!