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Ask Dave

Proprietor or Incorporated?

JoAnna's husband doesn't need to worry about setting up a corporation as he's starting his business. Just setting up a DBA bank account for himself will do.

QUESTION: JoAnna’s husband is starting his own business and she is concerned about the start-up.  Should he do a sole proprietorship or become incorporated? How much should they set aside for taxes?

ANSWER: I would not bother to spend the time or money on setting up a corporation.  You only need to set up a Sub S Corporation if you have achieved the following:

1. You’re going into a business in which you’re likely to be sued.
2. You have substantial personal assets.
3. Your business has grown and is a target for lawsuits.

Most people don’t need to incorporate when they start their business.  Just open a checking account under a sole proprietorship (a DBA account – doing business as) and put all your income from the business into that and take all your expenses for the business out of that.  The remaining amount is your profit and you should pull one-fourth out of that profit for taxes.