When Should You Incorporate Your Blog?

Now that I’ve gone thought the step-by-step to incorporate your blog, the next question is when should you do it? Because the corporate structure is more complex and more expensive to run, many bloggers start their blog as a proprietorship with the hopes of incorporating when the blog starts making the big bucks. However, this may not be the best way to go about it.

Running The Numbers

One of the advantage of running a proprietorship is any losses can be written off against personal income. If your new business loses $10,000 in its first year, you can take that $10,000 and use it to reduce your employment income by $10,000. This cannot be done in a corporate structure because the corp is completely separate from you.

While it is common for normal new businesses to lose money because of high start-up costs, it’s pretty hard to lose money on a blog. Your only start-up costs are the domain name and web hosting, which shouldn’t take long to recover. It’s very reasonable to assume that a blog would be profitable in its first year. The money the blog makes would then be added to your personal income and taxed at your marginal rate. When you incorporate should be based on your marginal tax rate.

Incorporate When Your Marginal Rate Is Higher Than the Corp Rate

The US and Canada taxes its citizens on a progressive income tax scale – the more you make, the more they take. For 2008, the BC corporate tax rate for a CCPC (Canadian Control Private Corporations) is a flat 15.5% on the first $400,000 of net income. Knowing this, the answer on when to incorporate is pretty simple: incorporate if your marginal tax rate is higher than 15.5%.

If you were in the 40% tax bracket and ran your blog as a proprietorship, then it means you’ll be paying 40 cents tax on every dollar your blog makes. If the blog was a corp, it’ll be paying 15.5 cents on the dollar. That’s a much better deal!

After entering everything into a big spread sheet, I came up with the following: If you have personal income of more than $37,178, you should run your blog as a corp. Keep in mind, this only applies to BC. Because the tax percentages are different, you’ll have to run your own calculations for your district. However, the rule is basically the same – incorporate if your marginal tax rate is greater than the corporate rate.

Having said all this, you shouldn’t rush out to file the corp documents just yet. Remember, a corp cost more money to run. The filing fill fee alone is $350 and if you get a lawyer to do it, the cost will go to $1,000 or more. Accounting for a corp also cost a lot more money as well. Make sure the blog can cover all these costs before moving forward or the tax savings won’t offset the added cost of incorporating.


34 thoughts on “When Should You Incorporate Your Blog?”

  1. John, would you say this applies to just your blog or your entire affiliate business in general even though you earn income not associated with your blog?

    1. Graham Lutz says:

      I think the idea of paying less taxes would apply to all areas of income! wouldn’t the philosophy be the same with affiliate earning? Incorporate when you pass your marginal tax rate.

    2. It looks like its applied to all because of TTZ Media Inc 😉

  2. Another great post. Thanks for the information. I’ve been putting off incorporating for a long time now. This year will be the year for me.

  3. This is definitely something to keep in mind. I appreciate that you present some of the nuts and bolts of running a blog as a business.

  4. John,
    How do you pass your corporation’s income to yourself, the employee, and still keep your personal income tax at the lowest?

  5. Again, really great post. Really smart things you’ve said, that some people would just forget about and end up making wrong decisions- like rushing to incorporate a blog.

    1. RacerX says:

      John is very much right in saying that you have to look at it in ROI terms. If you aren’t getting back your costs, why add the hassle.

  6. Tom says:

    Great post John !

    Can you talk about how we should go about doing the accounting work if we decide to incorporate the blog ? Is it so complicated that we need to find an accountant to do it regularly ? or can we just keep all receipts and statements related to the business and give it all to the accountant once a year to file the taxes ?

  7. Syed Balkhi says:

    very informative post john.

  8. John, you need to account for the fact that dividends added on top of regular income is taxed. For example, in NL, if I made $50k in salary I would pay 36% in tax . If I withdrew $20k in dividends for that year (22% tax), it would be pretty much equal to regular tax once the corporate tax is accounted for (16%). Added together is 38% tax under a corp.

    Basically speaking, if you have regular income, there might not be a huge tax advantage. Albeit, it depends on which province you are from. BC is the most dividend friendly province in Canada.

  9. Simon Lau says:

    For sites that aren’t nearly as big as johnchow.com, would you just recommend something like quicktax business?

    1. John…I am wondering this too, what are the accounting costs and requirements? Can I do all the accounting with QuickTax Business for corporation? I have always done my family’s taxes, but I’m wondering how hard it is for the corporation tax filings…please let us all know! You could title the post, “Accounting for your Corporation”.

  10. Katie says:

    Great post John. I will be waiting along time until I do that.
    Thanks for sharing that. It was very helpful. I enjoy all the post’s you write about. Your a great writer! Very smart too!

    ~Katie 😀

  11. steve says:

    In the US, you can elect your corporation as an S-Corp and it passes the income or loss to you personal taxes. For most bloggers, I think there is little need to incorporate their blog.

    1. Lewis Empire says:

      Most bloggers make no money!

  12. Great thing about incorporating a new blog in the US is this – if you incorporate it as a “C” corp, you can carry forward your losses to the next year, and if the next year you make a profit, you can offset that with your losses from previous year. However, you cannot do that with an “S” corp.
    *Disclaimer – please verify this with your cpa or lawyer.

  13. This is the post I have been waiting for. Thanks John. I am right on the line of your “roll it into a corp” for income, so I am thinking I will go ahead with it and hope this year is even better with regards to my income.

    Thanks again for writing all this. I am pretty sure Ontario isn’t too different from BC in many regards. Time to do some research.

  14. James Orr says:

    I *FINALLY* got around to reading the February, 2008 Entrepreneur magazine this month and saw the article about you and decided to check out the site today. WOW! I think I found a goldmine of amazing resources. Thank you! Thank you!

    1. Lewis Empire says:

      There’s a solid year worth of reading to do here. Have fun!

  15. Great post… all details that everyone needed on blogging is already here. 😯

  16. Terry Tay says:

    The large majority of blogs will not come close to needing to incorporate, but it’s great that you provide some clear precise information.

    Blog owners need to know that if they run their blog as a sole-proprietorship they are able to write of any office expenses associated with the blog. If you purchase advertising for your blog, you can write that off. If you pay for internet service, you can write that off. You bought pens and paper, you can write that off. And so on…
    ~Terry

    1. sie says:

      In Canada as JC is you can’t write off advertising unless its in a canadian owned periodical that serves the Canadian market. Adwords therefore is out.

  17. sie says:

    Based in Alberta – Been looking into similar – same issues – the one you don’t address, passing earnings from corp to personal income is still taxed on top of corp rate of 15.5% – how do you avoid this?

    1. Thats the tip…your money held in a corporation is taxed lower until you withdraw it than its personal income..the trick is to spend as much as you can as a corpration….buy everything within your corp!

  18. David Chew says:

    Nice post john, there is been many of these nice post recently and is very helpful, thanks john.

    1. very very true…John you have stepped up your game recently man….keep it up!

  19. Jake Cohen says:

    I didn’t know that. Guess you learn new things everyday. Although at my age and my income I don’t exactly think that this is at all necessary. :mrgreen:

    TalkPrice.net

  20. JoNathan says:

    Very good read … something I am going to look into for my blogs.

  21. A very interesting series of posts on incorporating your blog. I would also put a rule that unless you are making $10,000 /year form your blog/blogs in revenue , then incorporating is not really worth the hassle.

    1. Lewis Empire says:

      I guess it depends where your forecasts are. Is it too late to incorporate and role in a blog after money has been made personally?

  22. This is a great informative post for everyone!

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