How to Incorporate Your Business - and Why.On a technical level, the question of "how to incorporate myself" is difficult to answer because the whole point of incorporation is to separate your business liability from your personal liability. You see, you don't incorporate yourself -- you incorporate your business. That entity can be a traditional C-corporation, a Limited Liability Company (LLC), or an S-corporation. What's important is that your business and you are separate. Before we get to the "how to" part of the question, we need to answer the more fundamental question of "why to incorporate". First, Why Do You Want to Incorporate Your Business?First of all, why do you want to incorporate your business? There are some promoters out there that tell you that if you incorporate "yourself,” you can somehow avoid taxes on your income or suddenly be able to deduct personal expenses from your taxes. If you're a salaried employee for someone else, incorporating yourself is probably a waste of time unless you have a business on the side to incorporate. You won't be able to gain any tax advantages (in fact, you'll probably end up paying more in taxes), and you'll simply add more paperwork to your life. As far as deducting personal expenses from your taxes, you can never deduct any expenses that are not made in the ordinary conduct of a business or are reasonable to the conduct of your business. Does this mean that no one ever takes wrongful deductions? Of course not. But remember that the statute of limitations on tax fraud is long, and interest and penalties add up quickly. While a criminal conviction is unlikely for run-of-the-mill tax fraud, it can and does happen for repeat and flagrant violators. If you're self-employed, then incorporating, particularly forming an LLC, might make sense. Many states permit what are called Professional Corporations or Professional Limited Liability Companies (PLLCs). These are used by licensed professionals such as doctors, lawyers, and accountants. PLLCs and P.C.s offer some liability protection from malpractice of your "partners" (technically, they are called "members" in a PLLC), but don't typically shield you from your own negligence or malpractice. For that, you need insurance. If you’re running a business on the side, you don’t have to incorporate to take tax deductions from your business expenses. You simply list your business income and expenses on Schedule C of you tax return. There’s some evidence that taxpayers who use a partnership return – a form 1065 – (which is also used by LLCs that elect to be taxed as partnerships) are audited at a much lower rate than those using a Schedule C. If you fear the IRS tax audit, you might consider incorporating an LLC. Steps to Incorporate an LLCNow we can finally get to the nuts and bolts of "how to incorporate" your business. It's actually relatively simple to form an LLC. Here are the steps broken down: First, you need to decide which state to incorporate in. Generally, you want to incorporate in the state that you live and work in unless you have a significant reason to incorporate elsewhere. Don't believe the hype about incorporating in Nevada, that somehow you can avoid paying any state tax. If you live in California, for example, even if you own a Nevada corporation or LLC, once you take profits or a salary, California will tax you personally. Second, you need to file Articles of Organization for your state. In most states, this is a 1 or 2 page form. You can fill it out yourself, or you can hire an online incorporation company to do it for you. Third, you will need to file for a Federal Employer Identification Number -- also known as an EIN or FEIN. This is like a Social Security number for your business. You'll need it to file tax returns and open bank accounts, as well as for establishing business credit. How to Incorporate In Your StateEach state has its own rules about how to incorporate an LLC, different fee schedules, annual reports, etc. If you use a service like Legalzoom to form your LLC, they keep track of that for you. But, if you choose to form your LLC yourself, then it's your responsibility, which is why I created state-specific pages below (I'm adding states in order of popularity based on the number of searches done). State Specific How-To Form An LLC Pages: How to incorporate a small business (non-state specific information. Return to LLC Made Easy homepage. Return to top of How To Incorporate My Business page. Business Credit Now: We Hired Two Credit Consultants So You Don't Have To! Establish business credit for your new LLC without a personal guarantee. Find out which companies report to Dunn & Bradstreet, which 20 vendors will lend to you without a personal guarantee, and how to get a 75 corporate credit score (excellent!) in 6 months. Learn more from this very reasonably priced book>>
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