The Most Misunderstood Item In Business

The decision of when, how, and why…to incorporate is something that I find a mystery in about 75% of the conversations I have with entrepreneurs and other very smart people.  Some believe that the INC or LLC is a safe haven when deductions just magically eat away at gross income and reduce your tax burden while making you impervious to attack from creditors and liability.  Wrong.

The bottom line is this.  You may or may not have some liability protection.  That’s for the court (judge or jury I’m not sure)…if/when you get sued.  Odds are you wont get sued and you’ll only be dealing with an audit from the IRS (which is better?).  Tax wise, you have the option to have your LLC taxed as a Corporation or as if you were a simple sole proprietor.  Nice.  An S-Corp presently provides you no such option and you will have any income or loss distributed via Schedule K to your personal taxes each year.

Also, even if you get "credit in the business name"…odds are you’ll have to personally guarantee it until your business is well established and is profitable. 

A quick piece called The Benefits of Incorporation  appears in today’s Start Up Journal by the WSJ. 

There are probably plenty of things that I don’t know about and I’m not an attorney or tax advisor **disclaimer.  None of this is advice simply sharing experience**. 

However, I know enough to understand that Incorporation does a few things like make it easier for people to invest in your company, provide a basis to build a corporate history with banks and creditors, and it will give you a sense of personal satisfaction to be sure. 

I used Legal Zoom  to do my LLC and it was about $400 and took a few weeks.  You can expedite for more cash.  I also used Logo Works to create my corporate logo and spent about $400 there also for a package that allowed revisions, etc.

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