Tax Benefits of Incorporation

If you want to enjoy some great tax benefits and limited liability, you have to incorporate.

Make sure that you determine the laws regarding taxation of corporations. When you know the process, you can finish this in no time.

As an entrepreneur, there are many considerations that you should look into in order to make the right decisions. There are tax benefits of incorporation that you should know before you decide to expand the business. This is a great decision that you must make and since the economy is now slowly improving, the timing is perfect. Business owners only have one aim – to earn greater profits. When you incorporate, the company will now have its own entity. There are several types to choose from like C Corporation, S Corporation, LLC, etc. You have to pick only one that will suit your business needs.

The Benefits

There are two advantages when you decide to incorporate. The first one is tax deferral. The corporation can retain the earnings. You will also be able to enjoy exemption with your $500,000 capital gains. This can be availed when shares are sold but not in the event of selling a partnership or sole proprietorship. The net income of a sole or partnership is usually taxed directly to the owner. On the other hand, a corporation is a separate entity and so the tax rates are also different. When you decide to incorporate in Canada, the tax laws and regulations in that country will be applicable to the business. In Canada, the tax rate offers great benefits. The initial $200,000 earnings of the business will enjoy a reduced tax rate; that is, if the business is active. This is called tax deferral.

For business owners, the deferral is really significant. In most situations, the tax system is neutral in dealing with various business structures. A corporation will normally have non-active income like capital gains or investment income. The rate applied to individuals will be applied on the corporation. Passive income doesn’t have tax deferral.

Liability protection for the owners is one of the best things that you can enjoy when you incorporate. Shareholders tend to have limited liability but in the case of the directors, they will also incur other liabilities since they are the ones managing the business. Some of the liabilities include unremitted GST, PST, source deductions, and other environmental liabilities. In the case of passive directors, there might be exceptions to the rule. Still, some of the liabilities will still be present. Now that you know some of the tax benefits of incorporation, don’t you think it’s time that you consider incorporation for your business? With this, you can expect to make a lot of profits.


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