In recent years, small business gigs have taken off. Companies like Uber, Lyft, and DoorDash have provided contract-based jobs allowing workers to work at their own pace and for as many or as few hours as they please. These are just some of the types of freelance work you could do – possibilities are endless.
Whether you’re selling a skill such as photography or selling merchandise, many entrepreneurial-minded Americans are looking to supplement their incomes. For some, side hustles have become so successful that they’ve been able to replace their full-time jobs! Regardless, at some point, an entrepreneur should consider legally forming a business.
No matter what specific type of business you form, there are general advantages you’ll gain when incorporating your business in Florida for each type of business entity. The following are some of the significant benefits of incorporating your business in Florida:
Favorable Tax Climate
When a business is unincorporated and runs as a sole proprietorship, any income that is earned by the business is paid by the business owner as the sole proprietor. While that could sound advantageous because sole proprietorships don’t require separate business tax filings, the convenience may not be worth the cost.
Money earned from sole proprietorships is taxed at the individual tax rate as income earned by the sole proprietor. Conversely, money earned by a corporation is taxed at the corporate tax rate, meaning that the business owner is only taxed on the money paid back to them from the corporation. However, those benefits are only applicable to businesses organized as corporations.
LLCs and partnerships are taxed as “pass-through” entities, meaning that their income is attributed to the individual partner or partners, and taxed accordingly. In short, the specifics of business taxation are complicated, as the taxation structure varies depending on the type of business entity.
However, one thing remains true, regardless of the type of entity – incorporating a business in Florida is great as there’s no additional personal income tax to pay. In addition, corporations that exist in Florida are only required to pay 5.5% on their corporate income tax return.
Maximizing Tax Deductions
Incorporating a business is advantageous from a taxation perspective because it allows for an easier process to utilize tax deductions. The IRS Revenue Code allows for all kinds of business deductions, which lower an individual or an entity’s taxable income, thereby lowering the amount of tax they have to pay. These deductions can include everyday business expenses such as office supplies and equipment as well as rent payments for a business’s location, sometimes even partially including home offices. After a business is incorporated, separating business expenses from personal expenses makes identifying and utilizing tax deductions much easier than if they were mixed.
As a side hustle, many taxpayers choose not to take advantage of these deductions as it can be difficult to track expenses. However, for a business that is starting to bring in substantial revenue, these deductions can save a significant amount of otherwise taxable income each year.
Personal Liability Protections
The most consequential advantage to incorporating your business in Florida is the personal liability protections that come along with incorporation. Liability protections apply to corporations and LLCs, so unlike taxation benefits, these benefits are equally applicable to both types of business entities.
In short, personal liability protections refer to the idea that a business owner is protected from liability if the business gets into financial trouble. Sometimes, business financing arrangements will require a business owner to make a personal guarantee on a loan – meaning that the business owner can be liable for the business not paying the loan. But outside of those types of scenarios, which are voluntarily entered into by the business owner, business debts generally do not affect a business owner’s personal finances when a business is incorporated. These types of protections are important because starting a business is a risky endeavor. Statistically, a decent portion of small businesses fail. Incorporating a business allows a business owner to take business-specific risks without putting their personal credit on the line.
An incorporated business’s liability protections also apply to a business getting into legal trouble. For example, if a person slips and falls on a business property and sues the business for a lot of money, the judgment can only be collected from the assets held by the business. In a sole proprietorship, the judgment can also be collected by assets held by the business owner – such as their house, car, or other personal belongings. Incorporating a business allows business owners to stay safe from liability for judgments against their business.
Fundraising and Financing Advantages
Incorporating a business makes it much easier to raise capital in terms of bank financing and investor financing. Specifically, corporations are designed so that shares of the business can be sold to investors in exchange for money that can be used to get the business up and running. Otherwise, most banks require businesses to be incorporated in some way – either as an LLC or a corporation – before the bank will make a business loan.
Without investors and financing, it can be difficult for businesses to grow, and growing a business is every business owner’s top priority. To obtain investors and financing, a business should be incorporated. That way, the business is set up in a way that makes it easy to exchange equity for money.
While there are many reasons to consider incorporating a business in Florida, these four reasons are some of the main considerations that should be taken into account. To get started incorporating your business, you should speak to a Florida business attorney as soon as possible. Our team is ready to assist you in determining which business entity would be most advantageous to you given your business circumstances. Contact us today to get started!
