Incorporating at the right time can save you thousands in tax dollars
In this week’s Finance Friday, we sit down with Kirstin Smith, Enrolled Agent and small business tax expert, as well as Beth Gummere, Kenza’s CFO, about the when and why of incorporating. We answer questions like:
What does it even mean to incorporate and why should I consider it?
Should I consider incorporating before even getting started?
Who do I talk to for help with understanding the benefits of this?
How much money could this save me?
What's involved in incorporating?
What are some advantages and disadvantages?
Here's what you'll find in this episode...
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[4:31] Beth has her businesses set up as corporations, for many reasons including hiring others, separating finances, and keeping things simple
[7:32] Tax expert Kirstin Smith let's us know that, first and foremost, there is legal advice you'll want to seek on what's best for your business, industry and location
[8:50] There are some simple differences between types of corporations; a C corporation pays its own tax, and a S corporation does not pay its own taxes federally, but instead goes on the business owner's personal taxes
[9:50] What about LLC's? Yep, still liable for self-employment tax, but there are caveats. Even Kirstin says it's confusing, but that's why she wants you to seek legal and tax experts to guide you and save you THOUSANDS
[10:47] What if I am brand new to freelancing? When do I start? Kirstin advises to be prepared for taxes, but your first year may be too soon to incorporate
[16:06] Don't be like the guy in Kirstin's cautionary tale; make sure you know all the steps and layers to incorporating, like filing with the Secretary of State and IRS
[17:50] In the US, check out the Secretary of State websites for info on how register
[20:06] There are different requirements in different states, and timing matters. In California (Kenza's home state), corporations have to pay $800 minimum/year in corporate tax, whether you started in January or November (yikes)
[21:25] Don't miss this: as an entity, taxes are due March 15, a whole MONTH before your personal taxes. Lateness incurs steep penalties (double yikes)
[24:10] The more complicated it gets, the more you want the organization to stand on its own. Some folks who are starting bigger ventures, or starting a business with another person, may want to consider incorporating from the start
[26:02] Creating an entity is creating the structure, or container, to hold what it is that you're doing. Well-thought out containers create safety nets and freedom for you to do you
Making Money Can Get Complicated. Have a Plan in Place and Know When to Talk to an Expert.
Resources mentioned in the episode...
Kirstin Smith can be found at BalancedTax.Solutions
Additional local resources can be found at your local Small Business Development Center
As with any finance- or tax-related advice you get here at Kenza, please be sure to consult with a local expert in your area before making any decisions. These episodes are intended for informational and educational use only.
