Disadvantages of Incorporating

by Janet Attard

Among the disadvantages of incorporating are:

• Your cost of doing business usually increases due to added fees you have to pay.

• The amount of paperwork you have to do increases because of legal record-keeping requirements.

• You may be subject to "double" taxation, having your profits taxed once at the corporate level and once again as an individual.

• The IRS could limit your salary as an employee of your own corporation to an amount it considers reasonable and treat amounts above the "reasonable" salary to be dividends.

• Your personal finances must be kept completely separate from the corporations finances. Thus, you can't dip into the corporate bank account if you come up a little short on personal cash for the week.

• Closing the corporation's doors permanently can be somewhat complicated and costly.

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