While many small business owners decide to incorporate their companies in order to protect their personal assets from business liability, the financial benefits can extend far beyond that single goal. Turning your business into a corporation or Limited Liability Company (LLC) can provide everything from tax advantages to better financing options with small business lenders. Consider the following benefits:
Incorporating can help you avoid the trap of double taxation – paying both corporate and personal income taxes – because the profits and losses pass through to you as the owner, only personal taxes will be required.
Unlike individuals, corporations and LLCs can deduct business expenses, including things like salaries and money poured into growing the company. All of these deductions reduce your taxable business income.
In case of lawsuits or other legal claims against your business, being incorporated will protect you from losing your personal assets. Only the corporation or LLC can be held responsible in such cases, making sure you are never at risk of losing your home or car.
Adding an “inc.” or “LLC” to the end of your business name not only improves your credibility and authority among your clientele and business vendors, it also makes you more financially convincing as a company with lenders. Finding funding your company will be much easier as an incorporated firm because lenders see less risk in loaning money to businesses that can be sold or ownership transferred in case of default. Without the incorporation, lenders must rely solely on the personal credit history and assets of the business owner – a much riskier proposition. While not all companies are good or qualified candidates for becoming an LLC or corporation, there are many who are and can benefit greatly from the tax advantages and increased financing options.