Should I Incorporate?
That depends on where you are at with your business. If you just started a company, you don’t need to worry about that, yet. If you have made $5,000 from a company that you just started as your side hustle, you don’t need to worry about it. You don’t need to incorporate. If you’re starting to make money, perhaps over $50,000- $60,000 in profit, and you’re making over $100,000 in revenue, then, yes, you should incorporate.
Most CPAs will encourage you to elect an S corporation. For that, you are going to want to get specific tax advice from your CPA, or even do some personal research, but as a general rule, most CPAs will tell you to incorporate as an S Corp, which you can do as an LLC or as a straight S corporation. That can save you a lot of money. As a sole proprietor, you are going to be paying self-employment taxes on all the money that you earn, as well as income tax. As an S corporation, you’re going to pay payroll that includes a standard wage to yourself and any employees. You are going to pay payroll taxes on all of that. As well as income tax on all of your income. However, as an S Corp, you can also pay yourself a shareholder or owner distribution, which doesn’t get taxed as payroll and does not trigger self-employment tax. The result is you save money on taxes on the distribution amount, and that is why most CPAs will tell you to incorporate as an S Corp.
Maya Weinreb | Founder & CEO