Should I Incorporate My Small Business?
Your friend knows that you’re fantastic at mixing upbeat songs together so he asks you to DJ at his wedding. Before you know it, videos of that night blow up on social media and every weekend is booked up into the next six months! You decide to quit your day job and concentrate on doing it as a full time business. You start to wonder whether or not you should incorporate.
A lot of small businesses start off as a side gig – a supplement to employment income.
The main reason businesses incorporate is to limit their legal liability
Say you invested $5,000 into turntables. One day, bridezilla decides to sue you for taking away the ambience of her wedding day. As an incorporated business, you will only lose the $5,000 you invested (there’s some exceptions to this, but let’s not over complicate things). If you're not incorporated, she can potentially sue you for all of your personal assets (house, car, savings etc.)
What about tax?
Let’s say you make $100,000 profit during the year. As a corporation, you would pay approximately 13.5% back to the government in taxes. As an individual, you would pay approximately 24.5%. That’s a savings of 11% in taxes you can defer until you want to take the money out in future years.
As a corporation, you also have the option to pay yourself either a salary or dividends or a mix of both. With the right corporate structure, you can also split income with family members. The options chosen are usually based on advanced planning and individual situations to minimize the overall tax impact.
Still on the fence? Contact us