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.