Re: financial impact of incorporating

Subject: Re: financial impact of incorporating
From: Eric Ray <ejray -at- RAYCOMM -dot- COM>
Date: Tue, 23 Feb 1999 21:27:15 -0700

>Hope you will bear with me as I ask one follow-up question: how much (if
>any) do your costs increase once you incorporate? Does the same apply if
>you go with the S corporation? Now that I know the client insists I
>incorporate, I am wondering whether I should increase my bid on the
>contract so I net my usual hourly rate.

(This is US-centric. Sorry.)
Assuming that you have a reasonably good accountant and
that the person handling your incorporation is both good
(accurate and careful and knowledgable) and fairly priced,
you'll start coming out ahead almost immediately. We saved
more in our first quarterly filing after incorporating than
we spent on the incorporation process and costs.

While you're at it, though, go ahead and plunk down the $200-$500
for at least $1,000,000 of business liability insurance--it
helps build the impression of substance and solidity for
your corp. (Note that this is essentially slip-n-fall insurance
and likely nearly worthless for your purposes, unless you'll be
bringing clients to your home/office. Errors and omissions insurance
is either prohibitively expensive or unavailable, depending on who
you talk to.)

Back to your point...Business to Business rates (as your
corp to their corp) are usually higher than 1099 rates
anyway, so be sure to raise the rate to what the market will

Our accountant advised S corp, not C corp, because for
our needs the S corp was easier, faster, cheaper, and as

In terms of costs/benefits, consider buying equipment.
If you start with $10,000 in your equipment budget,
you're immediately down to $9250 after you pay the
employer share of FICA, then down the rest of your
taxes etc. However, if the Keith Corporation needs
$10,000 of computer equipment, then it gets
$750 worth more toys (er,... tools) than Keith the
Person would have because there's no FICA tax on the
corporation. Other benefits exist, but that's the most
easily illustrated.

Std disclaimer: I'm not a lawyer, accountant, or anything of
the sort--use these comments at your own risk.


Eric J. Ray RayComm, Inc. ejray -at- raycomm -dot- com

*Award-winning author of several popular computer books
*Syndicated columnist: Rays on Computing
*Technology Department Editor, _Technical Communication_

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