Tax Benefits of Incorporation

Is it less taxing to incorporate?

Some professional servicing companies may seem to escape death, but they will ever be able to escape taxes. That doesn't mean there aren't some tax benefits out there, though, that only the corporations are getting. Companies are tempted to incorporate for a number of reasons, but more and more often, taxes are the main motivator. But why?

Well, it's important to note right away that incorporation only means tax benefits for some companies. For others, taxes might actually become a bigger problem than they were before. However, potentially, you have a lot to gain - in what you won't be paying in taxes to the government - by incorporating. There are a few basic tax benefits that corporations often rely upon.

The first one is tax deferral. All these means, really, is that a company can keep more of its earnings. How can this be? When a company becomes a corporation, it becomes a separate entity of its owner and thus adheres to different rules than it did before. Typically, an owner must pay taxes directly to the government on his or her net income. But if that same owner has a corporation on his or her hands, it's an entirely new ballgame. The corporation has different tax rates than its owner! Depending on the state, a corporation will have to pay little to no income tax. You can expect that the income tax of a corporation will be significantly lower than a personal income tax.