In other words, if your corporation suffers significant losses, gets sued, or goes bankrupt, you likely won’t be at risk of losing your personal assets to cover those costs. “When you incorporate, you are creating a separate person in the eyes of the law, so all of your debts and liabilities for the most part, are kept to the company, which means it helps you protect your personal assets,” explains Jaime Bell, lawyer and founder of Contracts Market and Wild Coast Law. One of the biggest advantages of incorporation is limited liability. However, when you incorporate, your business income and your personal income are taxed separately, so you can leave money in your business and take it out later when your personal tax rate is lower. When you’re a sole proprietor or in a partnership, the government sees your business income and personal income as one, and you will be taxed on everything you earned in a year at the personal tax rate. If you are a higher income earner, you can also take advantage of tax deferral when you incorporate, which can help reduce how much tax you owe. For example, according to the tax rates in effect as of Janu, a corporation that qualified for the Small Business Deduction would pay income tax at the rate of 3.2% in Ontario, while corporations of other types in the same province would pay tax at a rate of 11.5%. Incorporated businesses may also qualify for the federal small business deduction (SBD), which can significantly lower your tax rate and reduce the amount of tax owed. Corporate tax rates are generally lower than personal income tax rates, resulting in significant savings at tax time. We all know that paying taxes is important but let’s be honest: most of us would prefer to owe less, right? Well, this is one of the advantages of incorporation.
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