Most often small businesses that are thinking about incorporating their business will consider the potential tax breaks as their first priority. While this is important, other factors should be considered as well. It costs money to incorporate your Company and it takes a bit of a time commitment for this .
Also, if you company has not started to make money as yet then incorporating may not be the best choice at this time. Then again you have more liability protection with an incorporated company than you do as a sole proprietor or partnerships.
To make the right decision you should look over your business situation from both sides. What will you stand to gain and what will you lose?
Determine what the benefits are now that you gain, even from a tax position as an unincorporated business. Some of the expenses and tax perks that you now enjoy may not be there if you change the business status. You need to determine how significant and important these are to you. Then compare these as to what you will gain in their place.
You may be a great business person but when it comes to business taxes this is just not your area of expertise. It is difficult for you to make an informed decision based on the facts and regulations that you are not fully aware of.
Ideally meeting with a Toronto accountant to discuss your current business status and exploring the feasibility of incorporating is the best business decision you could make. These experts have the knowledge of knowing what benefits the incorporated company may be eligible for, and are able to compare them against the benefits that the unincorporated company of yours is now receiving or should be.
Two major reasons for incorporating a company that has gone past the break even point in generating their income is possibly deferring taxes by retaining earnings in the corporation, and the possible capital gains exemption if you are thinking about selling the company in the future. As you can see your decision making not only depends on the current circumstances but for your potential plans for the business in the future.
Once you know where you would stand tax wise then you can look at the other non tax benefits or drawbacks of incorporating. You will feel far more comfortable with your decision because it has not been a hasty one.
