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Should You Incorporate?
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Article 8: Hire Professional Help Or Do It Yourself?
Considering the various forms of business ownership you can choose from – and the tax and legal consequences of that choice – consulting with a tax professional and an attorney is recommended before making a final decision.
If you decide to incorporate, you can hire a professional to help you with the process. You can also do it yourself fairly easily.
“There are numerous helpful books on the subject of incorporation,” says Gene Fairbrother, the lead micro-business consultant for the National Association for the Self-Employed (NASE). “So go to your favorite bookstore, find a comfortable spot and plan to spend a few hours reading up on it and understanding what is required.”
If you’re going to do it yourself, though, make sure you do it right.
“There are thousands of illegal corporations that haven’t taken the proper steps — held meetings, issued stock, created bylaws and things like that,” says Fairbrother. “Your company won’t be recognized as a legal corporation if it hasn’t followed the proper procedures.”
Although incorporating requires extra time and expense for paperwork and recordkeeping, Fairbrother says that for most small-business owners, this only amounts to 10 to 20 hours per year.
“If you determine that your business can save $5,000 a year in taxes, and it will take 10 hours of your time to do the paperwork, is it worth $500 an hour to you?”
What about those offers and ads you read about touting the benefits of incorporating in Nevada or Delaware? Although it could be beneficial in some instances, Fairbrother says that for the vast majority of businesses, there’s no real advantage to out-of-state incorporation. Only your tax professional can help you determine if there are benefits to incorporating in another state.
“There is just so much confusion and misunderstanding among self-employed individuals when it comes to the issue of incorporation,” Fairbrother says. “No two companies’ situations are the same, so careful analysis is required when selecting the right form of ownership for your company.”
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