Why does any startup entrepreneur incorporate a business? Is it for prestige, or to seem like a bigger company right away?
Those aren't bad reasons. But most knowledgeable entrepreneurs place their best new-business ideas into a corporate structure to protect personal assets from unexpected business liabilities. In other words, they want to play it safe.
The problem with this prudent, liability-limiting strategy is that owners of especially profitable businesses end up paying double taxes—first on corporate business profits and again on any dividends paid to shareholders. Owners also lose the opportunity to write off business losses against other personal or joint income as they could in a sole proprietorship business structure.
Fortunately, there is a way to incorporate so that startup entrepreneurs can minimize taxes plus keep their personal bank account away from business creditors. The answer is … an S corporation.
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