Incorporating your small business can be a difficult decision, thus it’s important to be aware of the advantages and disadvantages of incorporating your business. It is always best to meet with a Chartered Accountant to review your business income and expenses, including your previous tax returns, your current one and your future goals to determine if you should incorporate.

It is very easy to do and not as complicated as one may think.

The main advantages to incorporate your small business are:

Income Control

Once incorporated, you can decide on the timing on when you personally receive income from your corporation.  This control in timing gives you a real tax advantage and can save you tax dollars or unnecessary tax dollars. Being incorporated allows you to take your income at a time when you will pay less in tax.  Meet with your Chartered Accountant to find the best method that suits your particular tax situation.  It should be tailored to you.

Tax Deferral

Becoming incorporated gives you tax deferral potential.  This is because you can defer paying some tax until a later time when you are able to realize tax savings.  For instance, you may defer income until you are in a low tax bracket or if the tax rates have fallen or certain non-refundable tax credits may apply to you in a given year.

Income Splitting

This advantage can assist if there are other shareholders in your corporation. Such as your spouse and/or your children could be shareholders in your corporation.  Your corporation can pay dividends to them which would give you the opportunity to redistribute the income from family members in higher tax brackets to family members with lower incomes that are taxed at a lower rate.

The Small Business Tax Deduction

Once incorporated, it may qualify for the small business deduction.  This tax rate may be a much lower tax rate than applied to your personal income as a sole proprietor.

Raising Money is Easier

Another advantage of incorporating is the ability to raise money to develop and grow.  While corporations can borrow and incur debt like a sole proprietorship, they can also sell shares and raise equity capital. This will of course reduce your percentage in ownership in the company, however you are also sharing the responsibilities involved in growing your business with another partner.

Consult your Chartered Accountant about the disadvantages of incorporating.