To Incorporate or Not
I think this is by far the most common question I have been asked as an accountant.
A good accountant will usually ask many questions before they can provide a definitive advice. My aim is not to give you a definitive advice; rather, the aim is to take you through the thought process of an effective accountant.
A competent accountant will ask questions around the following five dimensions to help you decide to incorporate or keep operating as a sole proprietor.
- Current and future tax shelter.
- Legal liability protection.
- Financing options.
- Flexibility in changing the ownership structure.
- Future Plans.
The questions from these 5 dimensions will normally conclude in the following two tables.
- You’re more than 2 partners.
- You’re making > $80K in profits.
- You want to mitigate exposure to liabilities.
- You need to tax shelter for residual income.
- You want to raise complex equity funding or IPO.
- It is a part of your tax planning.
- You want to use Lifetime Capital Gains Exemption.
- You need to reserve Intellectual Property.
- You want to claim SR&ED credits for taxes.
- You want to reserve business name nationwide.
- Your profession does not allow.
- You’re making < $80,000 in profits.
- You aren’t exposed to significant liabilities.
- You have personal loss carry forwards to claim.
- You have no capital gains to shelter from future tax.
- Your income does not qualify as Active Business Income.
- You’re not leaving residual income in the business.
- You cannot afford to maintain the cost of corporation.
- You have declared bankruptcy in the last 10 years .
- You’re not sure about it.
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