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Why Incorporate Your Auto Trim Shop?

May 17, 2011 By Nadeem Muaddi

Now that US tax season over, it’s time to consider incorporating your shop. Doing so will help you save money on next year’s tax return and limit your liability if something goes wrong. Small Business Trends recently published an article that does a great job of explaining how.

Small Business Trend writes:

The S Corporation can help business owners reduce their self-employment or Social Security/Medicare taxes. As an S Corporation, you’re able to split your profits into two payment types: salary and S Corp distributions. You pay Social Security/Medicare tax (i.e. 15.3 percent) only on the salary portion. Meaning, if your business made $100,000 in profit and you pay yourself $50,000 in salary (and then $50,000 in distributions), you’ll only need to pay the Social Security tax on the first $50,000.

Of course, you can’t just go ahead and pay yourself $5,000 in salary and $95,000 in distribution. The IRS looks for “reasonable compensation” for any shareholder who is employed by the business. And they do watch this closely. This means you need to make sure you’re paying yourself market rate for the services you provide to the S Corporation. […]

Without incorporating your business or forming a Limited Liability Company (LLC), your own personal savings and property are at risk to settle any debts of the business. Once your business is an S Corporation, C Corporation or LLC, it becomes a separate legal entity. This means that the corporation or LLC (and not you) is responsible for all of its debts and liabilities.

I know you don’t anticipate angering clients or defaulting on any payments. And most likely, you’ll never encounter this kind of trouble. But things do happen. A legal business structure gives you peace of mind that your retirement savings won’t be wiped out by your business venture. And since creditor judgments can actually last a total of 22 years, forming an LLC or corporation can protect the assets you’ll have in the future, not just what you own today. [more]

If you’re still running your shop as a sole proprietorship, but want to take the business to the next level – now’s the time to act. Contact a local lawyer who specializes in incorporating businesses in your state and find out what you need to do to reap the benefits of a corporation.

Filed Under: Archive, Better Business Tagged With: Auto Trim, Auto Upholstery, Business Tips, Car Interior

Reader Interactions

Comments

  1. Edward Munday says

    April 19, 2013 at 4:36 pm

    Retired…Inc So The Bussiness Will Continue To Be Yours, You Have No Ideal How Easy It Is For Some One To Take It From You.If A Company Goes Bankrupt This Will Keep The Share Holder Or Share Holders Protected As Well Your Tax Situation Will Also Change To The Good. Its Just Not Safe To Operate As A Sole Propritor/OwnerOperator Any Longer. As Far As The Slip Covers Are For , They Would Help Protect New Car Seat Covers I Would Think But An Auto Trimmer Likes Things Done The Hard Way We Usually Get Paid For What We Know And What We Have Done The Harder The Better For Us. If Every One Knows How To Do It And Needs No Special Tools To Accomplish The Job Then Usually It Becomes Worthless To Do The Job.

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