Save on taxes by incorporating?

Save on taxes by incorporating?

Generally, corporate income is taxed at a lower rate than personal income. For many small proprietorships it may not matter. Corporate taxes may be more complicated sometimes, but generally that is out of an effort to be equitable and cut back on loopholes.

Is incorporation for you? From a tax accounting perspective there are rules to follow: First if you walk like an employee, and act like an employee, you cannot claim your income as corporate. The rules are more complex than that, but generally the more one has creative control to get the job done and responsibility to bring the resources to get the job, the more likely the income may be incorporated.

What’s the bottom line? That is not easy to answer, and depends on the situation. However, a good first question is as follows. Check out your personal marginal income tax rate .

Next, check out the corporation tax rates:

If there seems to be an opportunity, talk to a professional (after tax season might be the best time!) Both the numbers and the type of business have to be considered. There have been many lawsuits over the years as to whether income was corporate or personal.