Several considerations drive the decision to incorporate, including ownership and control, asset protection, and taxation. Incorporation can help limit your personal liability as a business owner. This is because, in general, a corporation’s creditors must look to the corporation’s assets to satisfy their claims rather than the personal assets of shareholders. In contrast, all partners in a partnership are financially responsible for all business liabilities of their partnership, and each partner’s personal assets are subject to attachment or lien by creditors. Likewise, a sole proprietor’s assets are subject to similar exposure, as are those of anyone who joins in an unincorporated venture.
Other benefits of incorporation include favorable pass-through tax treatment, increased tax deductions for health insurance and medical expenses, and lower payments for Social Security and Medicare taxes. The following discussion addresses some rudimentary tax considerations associated with forming a business in the United States. If your plans require more sophisticated tax advice, we can refer you to qualified tax professionals.