SMALL BUSINESS REVIEW
Fall 2004

by Jacques Luben, Editor
Inc. Plan Business Review

Is it better to form a new corporate entity
before the end of 2004?
or...
Is it more tax effective to wait until the beginning of 2005?

This question can be answered in the context of the successful business owner's primary objectives: Reduce personal and corporate taxes. Avoid needless government filings and bureaucratic headaches. Protect personal assets from business-related lawsuits. Create powerful credibility with customers, suppliers, banks, investors and others.

As one of the nation's leading incorporating firms, Inc. Plan (USA) receives many inquiries from our clients about the "best timing" to establish a new Corporation or Limited Liability Company (LLC).

Q: When is the best time to incorporate an existing business that is currently operating as sole proprietorship ?

A: The owner of a sole proprietorship must pay income taxes (at the personal level) based on earnings generated during the calendar year. If you form a corporation before the end of 2004, you will be eligible to take additional business deductions that can reduce your tax bill this year.

These increased write-offs can include (amongst others): greater health insurance deductions, home office rent and equipment leases. In addition, you may also deduct certain allowable prepayments of 2005 expenses to further reduce your tax bill.

Q: Does the previous answer about sole proprietorships also apply to partnerships that convert to corporations and LLCs before the end of 2004?

A: Yes it does.

Q: When should the owner of a start-up business form a corporate entity?

A: If you establish your corporation in 2004, you will immediately gain the tax and liability protection benefits that your company will require this year and far into the future.

Right from the outset, you will gain the ability to decide on the starting and (ending) dates of your fiscal tax year. This option gives you greater control over the timing of income and expense recognition starting in 2004.

This feature is particularly helpful if you operate a seasonal business where the timing of income and deductions is fairly predictable. Travel agencies, for example, typically enjoy their strongest sales periods in the summer months and during the Christmas holidays.

With proper planning, these travel agencies can "manage" ( reduce) the amount of taxes paid each year by deferring revenue from their best sales period into the following year. At the same time, they can take most of their business deductions during the current year: the net result is a lower tax bill this year.

Q: Should a new corporation be qualified as a Sub-chapter 'S' to fully benefit from these deductions?

A: In most cases, the answer is yes. As an 'S' corporation , your business profits and expenses are taxed at the same level as your wages and other personal income. The big difference, of course, is that the 'S' corporation offers important business deductions that can significantly reduce your taxes and simplify your tax returns.

Q: Is it difficult (and costly) to incorporate in 2004?

A: Forming a corporation with Inc. Plan (USA) is as simple as picking up the phone and calling us. Our primary goal is to simplify the incoporating process at highly competitive prices.

Every day, our friendly staff members help business owners reach their dreams by putting them into the best structure for their particular needs.

Please call us at (800) 462-4633 (domestic) or (302) 428-1200 (international).
Contact us via e-mail at info@incplan.net.

This document has been prepared using the best available sources.
However, tax laws and interpretations of tax laws are always changing. Inc. Plan (USA) cannot guarantee
or warrant the accuracy of the information contained herein.
In legal and accounting matters, seek the advice of an attorney or an accountant.

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