Advantage of Incorporation

If you're going into the investment business, incorporation is not mandatory, but may be prudent. Most companies exist in order to either organize their financial affairs and taxes, or to shield their participants from liability.

If you are exposed to potential lawsuits, incorporation is a wise choice. For example, if you are a landlord and get sued by a tenant whose apartment is broken into, you may be wiped out by paying settlement fees. But if you are incorporated, the company will take the brunt of the financial hit, and you may escape personal liability, saving yourself from dire consequences like personal bankruptcy.

In most cases, incorporation is for less dramatic reasons. After all, nothing is more boring than taxes, and many investors choose to incorporate for the tax savings potential available to corporations. If you incorporate, you can claim many deductions as business expenses - photographs taken of your property, lawn maintenance, major and minor repairs, office supplies, postage, and even such things as meals with clients and real estate attorneys.

To decide whether or not to incorporate, and what type of corporation is best for your needs, consult an attorney, tax planner, or business advisor. The downside of incorporation is that you have to do more accounting and tracking of expenses and income. But the upside can be tremendous, in terms of tax savings and protection from lawsuits.

Real Estate Investing