_Teal.svg){kind=icon}
Starting a business and embarking on the entrepreneurial journey is an exciting challenge. As you craft your business plan, strategize marketing efforts, and assemble your dream team, it's important not to forget the vital task of incorporating your business. It may sound complicated, but in reality, you’re simply creating a legal entity that is separate from yourself.
By incorporating a business, you unlock numerous benefits and tax advantages. The incorporation process may vary slightly from state to state, but there are 6 universal steps you can follow to successfully establish a business as a legally recognized entity.
Continue reading to learn about these 6 essential steps, streamline the process, and set your business up for long-term success!
6 Simple Steps to Incorporating Your Small Business
Step 1: Choose a Business Name
Picking a name is an exciting first step to incorporating your small business. You want a name that customers can easily remember, spell, and pronounce.
The main legal requirement to keep in mind when choosing a business name is that you cannot incorporate your business with a name that is already taken. Check with your state’s corporation service check to review availability for names you’re interested in.
Additionally, in the era of SEO, you should also consider the availability of an online domain that relates to your business name. The GoDaddy Domain Search is a great way to see what’s available.
Step 2: Register Your Business
If you plan on registering your business as a corporation, keep in mind that you’ll need to register with any state where your business has a physical presence. This could include where employees work, where you have in-person client meetings, or wherever a significant portion of your revenue comes from.
Check with the Secretary of State’s office to learn more about the registration process.
Step 3: Choose a Location
Whether you plan to open a brick-and-mortar location or will primarily run your business online, your business needs an address for incorporation purposes. The state you operate in can greatly affect the taxes you’ll pay.
Every state levies property tax and employment insurance tax. However, not all states impose corporate income tax, sales tax, and personal income tax. For example, Delaware has long been known to have corporation-friendly business laws, making it a popular state for incorporation purposes.
Looking for more guidance on location selection? Check out our list of the best cities in the U.S. to start a small business.
Step 4: Select a Corporate Entity
Next, you need to decide what business entity is right for you. Like your state location, the entity you choose affects how you pay taxes and how various levels of government will interact with your company.
Business entities are formed at the state level, usually by filing documents with a state agency, such as the Secretary of State. You’ll need a registered agent to handle communication with the state.
There are five main types of entities to choose from:
Step 5: Obtain an Employer Identification Number (EIN)
Just as the IRS uses a Social Security Number to track individuals, it tracks businesses with an EIN. It’s fast and easy to apply for an EIN via the IRS portal. Remember, even if you plan on running a sole proprietorship or don’t plan to hire additional employees, you should still apply for an EIN.
Step 6: File Articles of Incorporation
The articles of incorporation are a document that includes essential information about your business, including:
You do not need to file articles of incorporation for sole proprietorships or partnerships.
FAQs about incorporating a business
How much does it cost to incorporate a business?
Business incorporation expenses depend on what entity you choose and where you decide to incorporate. Hiring an entity formation service can save you time and money.
1-800Accountant does not charge for our LLC formation service. You’ll simply pay for your state’s tax-deductible fee. The fee will vary per state. Our fees are for added-value business services at different price points, depending on your chosen package.
Why incorporate a business?
Incorporating your business is the best way to protect your personal assets. When you set up your business as its own legal entity, it shifts any liabilities and responsibilities to the corporation.
Will I pay less in taxes if I incorporate?
There are several tax benefits to incorporating a business. One of the main benefits is the ability to deduct benefits such as medical insurance, travel costs, and other day-to-day costs incurred on behalf of your business. You can also deduct losses from your income tax, which is especially helpful in the early stages of a new business.
Work with a professional to ensure you’re set up for success
Incorporation is an important foundational step in your small business journey, but it can be complicated. That's why 1-800Accountant is here to help. A fast and free tax savings consultation with our experts can clear up any confusion about the business formation process, along with any other questions or concerns you may have as it relates to your small business. We look forward to helping you get the ball rolling!
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.