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When to incorporate

5/22/2013

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Two weeks ago, we held our first evening event — Tax, the law, and so much more. I thought I’d try to summarize some of the ‘tax’ part here… If I feel up to it maybe I’ll try the law part next time.

John Swain was there to share his insight and experience in tax matters. He focused on a critical question for many newly self-employed professionals: should I incorporate or not?

It’s always refreshing and inspiring to meet straight-talking professionals. John obviously knows that his reputation depends on honest dealing, and he made it plain that sometimes you just don’t need the services of an accountant and you should save your money. But by breaking the ‘best case’ tax burden down, John turned the question into simple math: if you stand to gain money on your net personal bottom line, then you should pay to incorporate.

Incorporation costs a few thousand dollars, plus a couple of thousand more every year when you file corporate taxes and renew your registration. So you had better be saving about $6k or more per year before it’s worth it (assuming you have no other income). If you are married or have others you can split income with, the savings come sooner. Check out his handy table →

For me, incorporation was an easy decision — I like the clarity of a simple distinction between ‘me’ and ‘my company’, especially in my finances, that incorporation brings. I also like the option of having multiple owners, and the arm’s length liability.

I did one thing that John warned against — I used an online service to incorporate. I liked the fact that it was inexpensive and fast. But John explained that if you are incorporating an existing business (I wasn’t), you should seek professional legal and accounting advice, because the government can assess your business retrospectively… and that won’t necessarily end well.
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We’re lucky to have plenty of pros that understand small business in Nova Scotia. Ask around, seek them out, and treat them as a partner. In John’s confident words, “they willsave you money in the long run!”

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Co-founder of The HUB South Shore, and founder of Agile Geoscience, a boutique energy consulting firm. I live and work in Mahone Bay, am married to Kara, and have three young children. I am @kwinkunks on Twitter.

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    founders of The Hub South Shore share their work experiences, outlook on local business issues and update the entrepreneurial community on the Hub's progress, events and future goals. Watch out for some great guest bloggers!

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