Ultimate Tax Shelter: Incorporating Your Business!
Are you looking for a tax shelter? Incorporating your own business has many benefits in addition to providing you with tax savings. If you don’t have a business entity, then you are not taking advantage of the tax write off list available to business owners. Having a business entity opens up a variety of doors to increase your tax savings, limit your personal liability, and even estate planning.
You can reduce your tax liability by increasing the number of business tax deductions that you take. Tax deductions are, without a doubt, one of the greatest ways to increase your IRS tax write offs. Taking your normal day-to-day business expenses and using them to lower your taxable income can greatly reduce how much money you owe Uncle Sam.
However, in order to take a business tax deduction, your business needs to have a profit motive. The profit motive is covered in greater detail in the Wealthy Tax Secrets book in our Blueprint to Wealth.
Today, incorporating a business entity or forming a Limited Liability Company (LLC) can even be done online. For a nominal service charge you can have your very own tax shelter by incorporating your business or forming an LLC with either Legalzoom or Bizfilings.
However, before you form a business entity you need to know what the strengths and weaknesses of each entity are. Some will give you a larger list of tax deductions while others will be better for limiting your personal liability. The following is a brief overview of what entities are best suited for your needs. You can learn more by purchasing our Blueprint to Wealth.
| If You Want To: | Consider: | Do Not Use: |
|---|---|---|
| Deduct Business Losses On Personal Tax Return | S Corporation, LLC, Sole Proprietorship, Partnership | C Corporation |
| Eliminate Double Taxation | S Corporation, LLC, Sole Proprietorship, Partnership | C Corporation |
| Have Liability Protection | C/S Corporation or LLC | Sole Proprietorship or Partnership |
| Hire Your Children | LLC or Sole Proprietorship | C/S Corporation or Partnership |
| Limit Self-Employment Taxes (Social Security/Medicare) | C/S Corporation | LLC, Sole Proprietorship, or Partnership |
| Limit Record-Keeping and Filing Requirements | Sole Proprietorship | C/S Corporation, LLC, Partnership |
| Lower Income Tax on Net Income Less Than $50,000 | C Corporation | S Corporation, LLC, Sole Proprietorship, Partnership |
| Lower Risk of IRS Audit | C/S Corporation or Partnership | LLC or Sole Proprietorship |
| Maximize Business Income Accumulation | S Corporation, LLC, Sole Proprietorship, Partnership | C Corporation |
| Maximize Disability Insurance Benefits | C Corporation | S Corporation, LLC, Sole Proprietorship, Partnership |
| Maximize Fringe Benefits | C Corporation | S Corporation, LLC, Sole Proprietorship, Partnership |
| Maximize Group Life Insurance Deductions | C Corporation | S Corporation, LLC, Sole Proprietorship, Partnership |
| Maximize Retirement Benefits | Any | N/A |
| Raise Additional Capital via Loans and/or Investors | C Corporation | S Corporation, LLC, Sole Proprietorship, Partnership |