Business owners who choose to incorporate may take advantage of a number of benefits of incorporation such as tax deductions, employee benefits and personal asset protection. Although virtually anyone can incorporate a business, owners may wish to consult with an attorney before incorporating.

Tax Advantages

A corporation may deduct business expenses such as automobile insurance, education benefits and life insurance. Corporation income is divided equally among members and only earnings that have been paid to an owner may be taxed.

Advantages

Many businesses may choose to incorporate in pro-business states, such as Delaware and Nevada. In these states, businesses pay no state income taxes which may offer considerable savings to certain businesses.

Benefits

When a business incorporates, it can offer additional benefits such as health, life and dental insurance. Corporations may also offer retirement plans with additional contribution limits such as a 401k plan.

A Business is a Distinct Entity

While employee salaries are subject to taxes, businesses do not have to pay social security, Medicare and other taxes. When a business is incorporated, it becomes a distinct entity and liable for its debts and losses. Once formed, the business can continue in perpetuity even after the loss of the owner. (Reference 1)

Liability Protection

When a business is incorporated, the business assets are distinguished from the owner's personal assets. Once incorporated, business owners are protected from personal liability for business losses or debts. Business owners should consider incorporating to protect their home and other personal assets.

Source:

National Business Association: The Benefits of Incorporating Your Business; Kate Smalley; 2005