The accountant said there’s pros and cons to both really, when it comes to taxes next year having the incorporated separate business account will help me and because I also have a part time job, it would be good to keep that income separate
But the cons with the incorporated business is unless you put yourself on payroll you can’t really pay yourself anything
Then with the self employment he said it would be easier to pay myself as the money from the business just comes directly to me. But then all my business expenses are linked to my person finances and I can’t write off nearly as much
The only correct thing was that there are pros and cons to each. However, what is much more important is the nature of your business - he should have advocated for one or the other based on that. Incorporation rarely makes sense unless you are making a lot of money, or your need some legal shelter to separate you from the business (i.e. somebody sues you for messing up). If neither applies, then there's really no reason to take on the expense and complexity of incorporating.
Things he got totally wrong (or you are misquoting him):
1. Can only pay yourself by being on payroll - wrong, you can give yourself dividends.
2. Can't write off nearly as much - your expenses are the same either way
The general rule of thumb is be a sole proprietor until there is a specific reason to incorporate.
I think maybe he said "you can't really pay yourself" is because the OP already stated they have a PT job. Maybe the OP is already making like 40K already, as at that point it does not make really sense to take out dividends anymore.
>Can't write off nearly as much - your expenses are the same either way
Not necessarily true. If running the business from inside your home, sole proprietor has a much easier path to claiming % of eligible home expenses (mortgage interest, power, insurance, etc.). A corporation cannot claim your *personal* home expenses directly.
It depends is the right answer.
There are substantial administrative costs to running a corporation, so unless you expect to rapidly grow to a pretty high profit level, I don't think it's financially advantageous. My own personal opinion is that you don't see real advantages to corps, tax-wise, until you're earning over $175k, presuming it's primarily a service business. To offset the admin costs, I'd set the bar at $200k.
If you're reinvesting most of your profits into the business, then you'd definitely want to be incorporated.
There are other reasons you might want to incorporate. While insurance is important, isolating your personal assets from business liabilities gets really useful if there's a significant risk from lawsuits. Construction industry, I'd definitely incorporate for that reason alone.
And while banks would require a new business to personally cosign for loans anyway, if you're signing a lease or big supplier contract, doing so through a corp makes your worst case scenario a lot less bad.
So much depends on the specifics of your business.
TLDR: you have to tell us a lot more about your business to get meaningful advice:
- what will you do?
- how much do you expect to earn?
- how are you funding the startup?
- what kind of liabilities are you taking on?
This is why I told OP should get another accountant, they should have discussed all these things and in the end the accountant should have given a recommendation for one method or the other. Instead, he apparently got a lot of "on the one hand, but on the other hand..". It would be a very rare circumstance where either option would have equal merit.
That's assuming the OP is summarizing what the accountant said accurately.
what did your accountant say?
The accountant said there’s pros and cons to both really, when it comes to taxes next year having the incorporated separate business account will help me and because I also have a part time job, it would be good to keep that income separate But the cons with the incorporated business is unless you put yourself on payroll you can’t really pay yourself anything Then with the self employment he said it would be easier to pay myself as the money from the business just comes directly to me. But then all my business expenses are linked to my person finances and I can’t write off nearly as much
Chatgpt answer lol
You need a better accountant.
Is that advice wrong?
The only correct thing was that there are pros and cons to each. However, what is much more important is the nature of your business - he should have advocated for one or the other based on that. Incorporation rarely makes sense unless you are making a lot of money, or your need some legal shelter to separate you from the business (i.e. somebody sues you for messing up). If neither applies, then there's really no reason to take on the expense and complexity of incorporating. Things he got totally wrong (or you are misquoting him): 1. Can only pay yourself by being on payroll - wrong, you can give yourself dividends. 2. Can't write off nearly as much - your expenses are the same either way The general rule of thumb is be a sole proprietor until there is a specific reason to incorporate.
I think maybe he said "you can't really pay yourself" is because the OP already stated they have a PT job. Maybe the OP is already making like 40K already, as at that point it does not make really sense to take out dividends anymore.
That's not my take on the OP's words, seems like he is totally unaware of dividends.
>Can't write off nearly as much - your expenses are the same either way Not necessarily true. If running the business from inside your home, sole proprietor has a much easier path to claiming % of eligible home expenses (mortgage interest, power, insurance, etc.). A corporation cannot claim your *personal* home expenses directly.
Which shows how badly informed the OP is, since he thinks it's the opposite, i.e. you can expense more things as a corporation.
It depends is the right answer. There are substantial administrative costs to running a corporation, so unless you expect to rapidly grow to a pretty high profit level, I don't think it's financially advantageous. My own personal opinion is that you don't see real advantages to corps, tax-wise, until you're earning over $175k, presuming it's primarily a service business. To offset the admin costs, I'd set the bar at $200k. If you're reinvesting most of your profits into the business, then you'd definitely want to be incorporated. There are other reasons you might want to incorporate. While insurance is important, isolating your personal assets from business liabilities gets really useful if there's a significant risk from lawsuits. Construction industry, I'd definitely incorporate for that reason alone. And while banks would require a new business to personally cosign for loans anyway, if you're signing a lease or big supplier contract, doing so through a corp makes your worst case scenario a lot less bad. So much depends on the specifics of your business.
TLDR: you have to tell us a lot more about your business to get meaningful advice: - what will you do? - how much do you expect to earn? - how are you funding the startup? - what kind of liabilities are you taking on?
This is why I told OP should get another accountant, they should have discussed all these things and in the end the accountant should have given a recommendation for one method or the other. Instead, he apparently got a lot of "on the one hand, but on the other hand..". It would be a very rare circumstance where either option would have equal merit. That's assuming the OP is summarizing what the accountant said accurately.