Most small business owners are often faced with the dilemma of knowing that using a corporation or LLC can help their business, but they are not sure if their businesses are large enough to justify the expense. There are three key factors that can help the business owner make that determination so they can move forward with confidence.
o First, how much cash is coming through the business? If the business is recording (after expenses) more than $ 60,000 a year, it is wise to consider incorporation. This can reduce your taxes substantially, even by half! This difference in his self-employment tax saved one of my real estate agent clients in Nevada over $ 10,000 in his personal taxes last year. She then turned that money around and invested in additional rental properties, which generated additional income for herself and her young family.
o The second factor is liability risk and asset protection. How much responsibility does your company have and how much can you lose if a problem arises? I recently heard about a business owner in California who had a 7-11. He did not want to spend the money on incorporations as he was not making huge profits. It turns out that a teenager was shot in his parking lot and was paralyzed. He ended up losing not only 7/11, but also his two rental properties and his life savings.
So if you have a lot of personal assets OR you have a high liability business, you may want to consider incorporation.
o Third, there is the protection of your personal credit. By establishing a corporation or LLC, it is possible to create a secondary source of credit for your business expenses. This can free up your personal credit score, allowing for additional business expansion and investment. I am currently working with a Hispanic gentleman who is doing very well in a multilevel marketing company, and he also has 6 real estate properties. So you have the $ 80,000 a year income from the MLM and you need to protect the properties. All of this has been done to his credit. To take your professionalism to the next level and make sure your family has long-term protection, you are establishing a series of LLCs to protect your property, a living trust to ensure your preschool children are provided for, and begin the process of having a new line of credit with commercial or corporate credit. This opens up new avenues for loans and investment possibilities.