Some experts believe that being incorporated provides better tax benefits than any other business designation, but they are wrong. Essentially, a corporation is a vehicle to limit liability. If you are worried about being sued, then you incorporate. But when it comes to accounting, corporations, partnerships, Subchapter S, and proprietorships all subtract outflow from inflow. Given similar figures, all three entities will pay identical taxes.
There is, however, one circumstance in which it is better, tax-wise, not to incorporate. If you are producing very little profit, say $15,000, then the first $12,000 is taxed at 10% and the next $3,000 is taxed at 15%. In contrast, the corporate tax rate is 15%.
Incorporating, however, does allow you to apply more operating expenses to your company than other business designations. --Howard Scott is a business writer and small business tax preparer in Pembroke, Mass.
