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Robert Lee Riley CPA, MBA-tax
Riley
Accounting
Why incorporate?

Copyright Robert Lee Riley, all rights reserved, do not duplicate without permission of author.

Limited Liability

...even with a corporation you are almost always liable for your own personal mistakes.
...under California law, everyone in the chain of production is vicariously liable. For example, you are harmed by a product you buy in a store, the producer, the warehouse distributor, the trucking company, and the retailer, are all liable in proportion to their respective joint and several liabilities. Even if you have done nothing wrong you may have to spend a small fortune on attorneys defending yourself in court.
...you can buy insurance, but there are numerous escape clauses that allow the insurance companies to avoid indemnifaction.
...you avoid "piercing the corporate veil" in two ways; one, maintain sufficient assets in the corporation to reasonably meet the forseeable liabilities that may occur, e.g. buy insurance and keep about $25,000 of assets in the corp. (this may vary), and, two, do not let the corp. become your alter ego - that is, keep all contracts, books and records, marketing materials, etc., in the corporate name with Inc. or LLC after the corporate name.
...a corporation simply makes it difficult, cumbersome, and expensive to sue you - it puts up road blocks. For example, a potential plaintiff threatens to sue you. You say "fine I will just give you the corporate stock - the corp. is yours, too bad that there is only $25,000 in the corporation's bank account and that you will get a K-1 at the year end showing taxable income to you, the new owner, of $150,000 - good luck sorting that out with the IRS." Not surpisingly the plaintiff withdraws the lawsuit.

Tax Savings

...if you have expensive medical premiums a C Corp will allow you to deduct them 100% against income.
...if you wish to put large amounts of income in a QRP (Qualified Retirement Plan) a corporate plan will allow you to borrow the money back. Thus, you are not tying the money up.
...if you have an S Corporation, you may, sometimes; to a certain extent, avoid some payroll taxes. Pay yourself a salary, and let the rest of the corporate income flow through to your 1040 free of Social Security tax (this planning tool is complex; kindly contact me for further information about what is allowable within the limits of the law).
...corporate deductions for 50% entertainment, travel, business development expenses, etc. are deducted 100% percent against income -  if you are an employee, those expenses go as itemized deductions and you lose the floor amount of 2% of adjusted gross income.

Increased Marketability

...if you are contracting yourself out to employers, often they will require you to be incorporated before they will agree to pay you. The payor avoids payroll taxes, employee benefits, pension costs, and human resources problems normally associated with a traditional employee-employer relationship. For example, computer programmers often will incorporate for this reason.

My Tax Data Organizer has additional information about corporations including S corps., C corps and Limited Liability Companies.

...to be continued as time permits, check back.