When does it become advantageous for an entrepreneur or self-employed to incorporate?

A business corporation is an entity separate from its owner. It is you who are owner of the business corporation whom you incorporate and consequently, you become the shareholder thereof.

When does it become advantageous for you to incorporate? It is necessary to take into consideration that an incorporation brings certain costs at the time of its implementation and that, afterward, a business corporation has to make financial statements prepared by an accountant as well as to file annual declarations with the authorities.

As an entrepreneur or self-employed, income generated by your business are considered as being your personal income in the eyes of the tax authorities. Over a certain amount of net income, you are subject to tax rates that go by increasing and being able to reach up to 48% in 2015. However, if you are incorporated, tax rates of a business corporation are lower.

Let us take an example, if in 2015 your personal net income (being the one from your unincorporated business) is $100,000, you will pay a tax rate of about 45% as a private individual. The business corporation will pay a tax rate of approximately 19% in 2015 and that, up to $500,000 of declared income for this business corporation.

When you have reached a certain level of income, it thus becomes very interesting for you to incorporate for benefiting from lower tax rates.