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Old 11-14-2012, 07:00 PM   #4
6th Gear Member
Join Date: Dec 2008
Location: Canada
Posts: 1,372
Originally Posted by T.Dot_E30 View Post
If you are the only employee and you plan to keep(or need to) everything you earn there is not much tax benefit of incorporating because remember you have to pay yourself a salary, you are taxed on that salary. Usually the benefit is bigger when the business makes alot of profit ($100k - $200k after expenses) that way you can defer how much to pay yourself each year and money is kept within the business to grow it. If your paying yourself all of it because the business isn't making much you're not going to get much tax benefits.

Alot of people do it with the intention of mixing their books (tax fraud), making the corporation pay all their personal expenses (mortgage, utilities, car, etc) and not pay themselves a salary that is taxed. Good luck hiding those paper trails if you get audited. If they see you have no personal income and all personal expenses funded through the business, they'll know whats up. As a sole proprietor you are still able to claim alot of expenses to reduce your taxable income. Again, my opinion without committing fraud is if your personal taxable income (ie after expenses/not revenue, ) isn't close to 100k+, you shouldn't do it solely for tax reasons because the benefits are minimal/non-existent it isn't worth the hassle unless you have a lot of assets to protect, in which case you aren't doing it for tax reasons anymore. Other than tax reasons, you have risk/liability. Are you in a business where you can be sued? If the risk is high, then you want to protect your personal assets and have them sue the corporation so you don't lose your 'house', and liability is a big reason to incorporate when there is that risk. Don't just assume you'll make more, in some cases it might end up costing you more but your personal assets are protected. But your situation may be different, so you should seek professional advice from an accountant. (Keeping in mind they make more money from you when you incorporate because of all the paperwork)

A quick search and this seems to explain this point.
Thanks T.Dot for the detailed explanation, 1st time going back as a consultant, so i am working for myself and only employee and no risk at all..
my accountant just told me to incorporate at $800, my understanding is that u have to have more than a client/customer to be a sole proprietor, is this right?..
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