Incorporating Now & 2011 Expenses

[maidspotless]

I have been a sole proprietor since January 2011 and looking now to incorporate. With the loopholes and creative deductions available with the corporation, is it possible to (for example) incorporate now (1/13/12) and roll any or all of 2011 expenses/activities into the corporation in preparation for the 2011 tax filings?

Thank you!

[Business Attorney]

No, the corporation wasn't formed in 2011 and can't have any income or expenses for the period.

But why would you want to shift the expenses into the corporation anyway? As a sole proprietor, the expenses directly reduce your income. What is better than that?

[maidspotless]

Well here is my limit with corporate knowledge - I wasn't sure (at this point) what would be better.... filing taxes as sole proprietor or corporation.

Hey, thank you for getting back to me so quickly!

[Evan]

I'm not really sure corporations have ways to make "creative deductions". You're either entitled to a deduction for expenses or not.

The "creative deductions" publicized in the news by big companies are specialized tax credits which are so specific that only certain companies would be eligible. That's not 99.9% of American businesses.

[rshughes]

If you haven't spoken with your accountant about your plans yet, you may want to look into electing to be an subchapter 'S' corporation rather than a 'C' corporation. An S-corp allows income and expenses to "flow through" to the shareholders (namely you), similar to what occurs in a sole proprietorship. Consequently income taxes are assessed based on your personal tax rate. The key advantage to an S-corp is that you will avoid double taxation as in a C-corp. (C corporations will pay tax on their reported profit, and you as the shareholder will also pay tax on any dividends and any wage income you take out from the corporation.) On the other hand, the C-corp tax rate might be lower than your personal tax rate -- only your accountant can advise you based on your own personal situation.

Having said all that, I agree with the previous posters. You need to have a good reason for being a corporation in the first place.