Ask Slashdot: When Is It a Good Idea To Incorporate? 293
First time accepted submitter stairmaster writes "A couple of months ago I came across an opportunity to supplement my income by doing some consulting work (read mobile app development) on the side. It appears that I will be doing this work for some time and my question for you is this: is it worth it to incorporate as a business? I know that the answer to this question is extremely dependent on circumstance but I'm interested in your experiences. Have you been in a similar situation, and if you have how did it work out for you?"
Ask a Lawyer (Score:5, Interesting)
Re:As soon as you have anything to take (Score:4, Interesting)
Why no edit button Slashdot?
Some message boards that have an edit button create sometimes quite confusing discussions.
Costs versus tax savings (Score:5, Interesting)
I did that a while ago.
Before that I workd as "freelancer". That ment a year with a high income led to high taxes. A year with no income had no benefit (well, payed no taxes ofc ...)
Now with my incorporation, the company works as a buffer, safing taxes in the long run.
I'm now no longer "freelancer" but "self employed". My company pays me small wages. So after wages, pension funds and internet/phone bills, the rest teh company makes is profit and taxed. (But to a significantly lower tax rate than above).
From that wages I pay income taxes (in your case you had likely two times wages, once from your original employer and in addition now from your own company).
However: if your company stops app development for a year, and continues paying you, it makes a loss in that year (on top of paying no taxes ofc). That loss, even from several years, is carried into the next year. Your personal taxes from your double income are not affected ofc.
Example: before incorporation I make $100,000 profit like this: // sabatical -> 0 Tax. // only worked half a year -> $6000 Tax
2007: $100000 -> 45,000 tax
2008: $85000 -> 39,000 tax
2009: $0
2100: $35,000
Now my personal income and company is something like this:
2007: $38,000 -> $9,000 Tax / $62,000 -> $19000 Tax
2008: $38,000 -> $9,000 Tax / $47,000 -> $14000 Tax
2009: $38,000 -> $9,000 / -$38,000 no Tax
2010: $38,000 -> $9,000 / (-38,000 from previsous year plus $35,000 earnings this year) - $38,000 wages -> additional $3000 loss -> no taxes
2011: $38,000 -> $9,000 / company starts now with -$41,000 loss.
Well, that is a bit simplified and the numbers are made up, but as a general idea I guess you get it.
You see the total taxes payed is far lower (or in other words, the remaining total money you "own" is much more).
Otoh you have costs to run the company, likely tax counceling, reporting, bookkeeping etc.
You only have to balance, founding costs and running costs of the company versus the buffering effect of the company (saved taxes).
Re:As soon as you have anything to take (Score:2, Interesting)
Ever since the corporation was invented, it has had many "human rights": the right to hold property, the right to buy and sell, the right to form contracts, the right to sue and be sued, etc. The legal question is not whether corporations have any rights, nor whether they have all the rights of a natural person (no one asserts that) but what non-null subset of human rights they do have.
Corporations are people: living, breathing people. Corporations are comprised neither of space aliens nor of soulless robots, but of real people, organized for collective action. When a corporation acts, it acts through people. The key question regarding human rights, such as the right to free speech, is whether citizens must entirely surrender their right to free speech when they organize together under a corporate form.
If citizens have rights when acting individually, why should those rights disappear when they act collectively?