Have you incorperated your IM business?

by SeanyG
22 replies
Hey guys,

I couldn't find another thread on this subject through the search.

I am well aware of the advantages that corporations offer:

- lower tax bracket
- write off expenses before taxes
- legal protection

I am have been setting up my first IM launch and it seems to be gearing up well. However its not worth it to set up a corporation unless I'm making $20,000+ this year. With this business it seems hard to predict weather or not I will hit that because there are so many unknowns with IM.

What are your thoughts? Have you guys incorporated or are you just sole proprietors?

Thanks for your time!
#business #incorperated
  • Profile picture of the author TLTheLiberator
    IMHO, save your money until you're making money.

    TL
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  • Profile picture of the author Deric Yin
    Incorporate, definitely. Surely you would expect to make more than 20 grand a year? Anyone who doesn't is just not taking it up seriously, IMHO.
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  • Profile picture of the author SeanyG
    The two schools of thought right there! Its like the thought war going on in my head! ^^^ lol
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  • Profile picture of the author Amy Bass
    Are you considering a C -Corp?
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  • Profile picture of the author htwfh
    It all really depends on what kind of protections BC extends to you either as a Corp or as a SP. Are you familiar with these? If not, and before you decide, contact your Revenue Dept. and find out AND also get on a Canadian tax and law forum to ask around. Ask about LLC too. Can't find a forum? Contact a solicitor directly, many will offer a free initial meeting.

    If you and your property are protected from suit in BC as a SP, than that takes some of the air out of going Corp what with the fees, etc.

    If not, than that by itself is a good argument to go Corp; especially LLC.

    Hope this helps some.

    -
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  • Profile picture of the author Derek S
    hey!

    I know what your saying with not being sure how much money you are going to make this year.

    my advice would be to wait until near the years end and see how much you have made.If you are in a tax bracket where incorporating would be smart than do it.

    You can go through a lawyer but be prepared to pay a stupidly inflated price from 1000-2000 CDA. If you skip the middle man (the lawyer) and find yourself a good law clerk it should not cost you a penny more than $400 bucks CDA. Plus if you keep good connections with the law clerk he/she can also do your corporate minute book!

    Canada does not have LLC so count that one out.

    If you do decide to incorporate later in the game there are plenty of good accountants who will take care of your corporate and personal tax plus book keeping all in one.

    wish you success man,


    Derek S
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  • Profile picture of the author htwfh
    Didn't know about Canada not having LLCs. Thanks for the info.

    -
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  • Profile picture of the author anthony2313
    Banned
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    • Profile picture of the author Jillian Slack
      The potential risk of not setting up your business as its own legal entity is truly scary.

      I mean, if you're not set up properly, you run the risk of losing EVERYTHING.

      Plus, if you're not set up properly in the beginning and not keeping track of things as required, when the time comes to sell your business you might be stuck paying all kinds of capital gains taxes. I've heard stories of people not keeping track of how much money they put into their businesses as they got started, so when it's time to sell, it looks like it's 100% profit because they weren't able to say, "Here's exactly how much I spent out of my own pocket to start this business, so it needs to be subtracted."

      It's definitely worth the time, money and effort to protect your self and your business.
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  • Profile picture of the author ericabiz
    I would say incorporate, and do it as soon as you're making a couple hundred dollars a month. Also, if you're selling your own product, incorporate immediately. Incorporating (and setting up separate business accounts) will protect your personal assets in case of lawsuits.

    I incorporated through LegalZoom. Works fine. You don't need most of the upsells they offer, though the S corp election form isn't a bad idea.

    -Erica
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  • Profile picture of the author Nutrifitness
    Bob M is on WF he can answer your questions
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  • Profile picture of the author Roca
    My recommendation is that you incorporate as soon as you can. The benefits outweigh the costs by far.

    1. Your personal assets are protected. Any lawsuits will be directed at the company and the company assets, which you can determine up front.
    2. You can write off expenses as business deductions, and that will lower your tax rate.
    3. As a company, you get much easier access to CPA networks, wholesalers, funding, contract manufacturers, reseller accounts etc.
    4. It gives you much more credibility. People prefer to deal with companies, not individuals.

    In addition to that, for me it established the motivation for growing it into a full-time income, and it also set me up for selling or franchising the business.
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  • Profile picture of the author Bob Montgomery
    I agree with Roca's comments above. In my experience the two main reasons people consider setting up a separate legal entity like a corporation or LLC are for liability protection and hopefully some tax benefits. With respect to liability protection, you should be thinking about this right from the beginning because you never know when a lawsuit will come. I'ts a little like car insurance. You pay for car insurance with the idea that you get some protection if you have an accident. You may go through your whole driving career without an accident and not use your insurance. On the other hand, you may have one the next day. In business, you can never be sure when a situation might occur that gives rise to a lawsuit so you need to be thinking about liability protection right up front.

    Whether or not you can save much tax money using a corporation or LLC depends a lot on your particular cirmcumstances and to some extent how much money you are making. However, even if you only save a few hundred dollars a year you will have paid for the cost of setting up the new corporation or LLC so its worth it.

    I usually recommend that people in small business like internet marketing use an LLC or S corporation. Both are good legal entities and you get similar benefits from both. (However, S corporations are only available to US citizens or permanent residents - while anyone can set up an LLC) They each provide liability protection to the owners and both are set up to be most beneficial for smaller businesses from a tax standpoint. You don't go wrong using either one.

    Since LLC's can now elect S corporation tax status (sounds complicated but its really not) I usually recommend the LLC. With an LLC that elects S corporation tax treatment you get the less formal operating requirements of an LLC but the same tax treatment as an S corporation so you get the best of both worlds, so to speak.
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    • Profile picture of the author Jillian Slack
      Originally Posted by Bob Montgomery View Post

      I agree with Roca's comments above. In my experience the two main reasons people consider setting up a separate legal entity like a corporation or LLC are for liability protection and hopefully some tax benefits. With respect to liability protection, you should be thinking about this right from the beginning because you never know when a lawsuit will come. I'ts a little like car insurance. You pay for car insurance with the idea that you get some protection if you have an accident. You may go through your whole driving career without an accident and not use your insurance. On the other hand, you may have one the next day. In business, you can never be sure when a situation might occur that gives rise to a lawsuit so you need to be thinking about liability protection right up front.

      Whether or not you can save much tax money using a corporation or LLC depends a lot on your particular cirmcumstances and to some extent how much money you are making. However, even if you only save a few hundred dollars a year you will have paid for the cost of setting up the new corporation or LLC so its worth it.

      I usually recommend that people in small business like internet marketing use an LLC or S corporation. Both are good legal entities and you get similar benefits from both. (However, S corporations are only available to US citizens or permanent residents - while anyone can set up an LLC) They each provide liability protection to the owners and both are set up to be most beneficial for smaller businesses from a tax standpoint. You don't go wrong using either one.

      Since LLC's can now elect S corporation tax status (sounds complicated but its really not) I usually recommend the LLC. With an LLC that elects S corporation tax treatment you get the less formal operating requirements of an LLC but the same tax treatment as an S corporation so you get the best of both worlds, so to speak.

      Fabulous info, Bob!

      Here's a question for you.

      I've been told that, once you set up your legal entity, you should NEVER sign anything that has to do with your business using your PERSONAL name because it opens up you, PERSONALLY, as a risk.

      Instead, I was told you should sign anything that has to do with your business as:

      Your Name, President, Company Name

      True? False? Iffy?
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      • Profile picture of the author Bob Montgomery
        For the most part that is correct. There have been legal cases where people thought they were acting on behalf of their corporation or LLC but just signed their own individual name to an agreement, so it caused a lot of confusion. In one case I remember reading, the judge said it appeared to him the individual was personally guaranteeing the obligation of the enitity so he held them personally responsible. To avoid this type of confusion and risk, it is wise to make it clear when you are signing on behalf of your LLC or corporation. There is no one only way to do this but the following is a common way:
        (Name of the company like) XYZ, LLC

        By:____________________________
        Its Authorized Manager (or Representative)

        However, sometimes a bank or lender may require the individual to personally guarantee a loan or obligation of the LLC or corporation and then you don't have a choice if you want the loan.
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  • Profile picture of the author Roca
    Thanks Bob. Have you heard of any cases where an affiliate was held liable because the product he sold caused damages?
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  • Profile picture of the author SeanyG
    You guys convinced me!

    Thanks so much for the info. I am in Canada so the Canada / USA clarification was especially helpful!
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  • Profile picture of the author darrin_cooper
    At the end of the day, the only reason for incorporating quickly is to reduce your tax consequences.
    After that reason, should be all the other benefits that incorporating offers.

    Go by that model, & you will know what to do.
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  • Since LLC's can now elect S corporation tax status (sounds complicated but its really not) I usually recommend the LLC.

    Let me ask a followup question to this. I'm incorporated as a Sub S primarily so I can pay myself a salary and minimize the FICA tax obligations. I'm thinking of starting another corporation as well. If I choose an LLC entity I can continue to take advantage of lower FICA... and the income still passes through at the end of the year?

    And the LLC should be easier to file a corporate return for?

    Can you point me to a site where I can read more about this?
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    • Profile picture of the author Bob Montgomery
      I'll have to check on some more information on this but one place to start is on the IRS website where you make application for an EIN #. If you work through several pages of the application indicating you are filing as an LLC, it will indicate that the default status for an LLC is partnership taxation but if you don't want that, then you have the option of filing a form to elect corporate tax status or S corporation tax status. So the information is actually provided by the IRS.

      The reason you can save money on FICA tax is that the tax law indicates that the shareholders of an S corp who also work in the business must be paid a reasonable salary. Most accountants I work with indicate that reasonable salary means approximately 50% of the net income of the business in most cases. It may differ depending on the type and nature of the business. On the 50% paid as salary, FICA taxes must be paid. The remainder of the net profit of the business is considered a dividend or distribution of income in an S corp and is not subject to FICA tax. I've been cautioned by some accountants that the IRS is trying to increase the amount of FICA paid so the 50 % figure may not be enough in the future. This is something you need to work out with your accountant or tax advisor.
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  • Profile picture of the author lakshaybehl
    Mike Filsaime has an excellent book on this which he keeps sending out with most of his offers. Excellent book, must read!

    Form multiple companies, if you really wanna be secure. One to do business with, one to manage funds for the first company. You literally can't screw up anyhow then.

    I believe its one of the Filsaime's best material.

    -Lakshay

    EDIT... I have forgotten the name, but do a search and you will find it. It has been sent out many times, as people on my list would report.
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