Incorporating yourself means setting up your business as a distinct legal entity, such as a corporation. As of 2023, there were more than 33 million small businesses in the US. Incorporating protects your personal assets, so if the business runs into trouble, your personal property and savings aren’t at risk. It also gives your business a higher level of professionalism and credibility. This can benefit you when dealing with clients, investors, or partners who want to see a more formal structure.

Incorporating can also bring financial perks. You might gain access to tax deductions and more flexibility in how you’re taxed. In the long term, incorporating can make it easier to raise money, offer stock options, or bring on partners. But it does come with more administrative and legal obligations, so it’s important to decide if the benefits of incorporating are worth the extra effort.

Below, we explain the different types of business structures you can choose from, how to handle naming your company and paying taxes, and what compliance requirements come with running an incorporated business.

What’s in this article?

• How to choose the right business structure
  
• How to name your corporation: Legal and brand considerations
  
• How to handle taxes after incorporating
  
• What ongoing compliance requirements come with incorporation?
  
• How incorporating yourself affects your liability and personal assets
  

How to choose the right business structure

Choosing the right business structure is the first major step in establishing yourself as a freelancer, self-employed person, or solo entrepreneur. The business structure you choose determines your liability protection, taxes, and administrative obligations.

Here’s an overview of your options:

• Sole proprietorship: This is the default for many freelancers. It’s simple, doesn’t involve incorporation, and doesn’t provide liability protection. Your personal assets are tied to your business, which means if something goes wrong, creditors can come after your personal belongings.

• LLC: An LLC is a popular choice because it offers personal liability protection, though technically it is “formed” rather than “incorporated.” If your business is sued or can’t pay its debts, your personal assets (e.g., home, savings) are generally safe. LLCs are also flexible with taxes—you can choose to be taxed as a sole proprietor or as an S corporation (S corp), depending on what works best for you.

• S corp: This structure gives you liability protection and comes with some additional tax benefits. As an S corp, your business’s profits and losses pass through to your personal tax return, avoiding the double taxation that comes with a C corporation (C corp). You can also pay yourself a salary, which can lower your self-employment taxes.

• C corp: A C corp also protects your personal assets, but it comes with more paperwork and double taxation. The business is taxed on its profits, and then you’re taxed again on any salary or dividends you take. While this isn’t the usual go-to for solo entrepreneurs, it might make sense if you plan to grow and eventually take on investors.

How to name your corporation: Legal and brand considerations

Naming your corporation is another important step. You need to choose a name that is legally viable and works for your brand long-term. Here’s what to consider:

• Availability: Make sure no one else in your state is using the name you want. Most states have an online search tool you can use to confirm this.

• Legal requirements: You might need to add on a legal term—such as “Inc.,” “Incorporated,” or “Corp.”—at the end of your business name. This shows you are officially a corporation.

• Restricted words: Some words, such as “bank” or “insurance,” are off-limits, unless you have special approval. Double-check your state’s rules.

• Trademarks: If you’re going to operate outside your state or want a strong online presence, make sure there’s no trademark conflict. This could lead to a legal battle later, if you decide to expand (even if the name is available within your state).

• Memorability: You want a name people will remember and won’t confuse with another business in your field. Try to avoid generic names.

• Flexibility: Your name should offer some flexibility. For example, if you expand into new products or services, the name should still fit. You don’t want to be limited by a name that’s too specific.

• Domain name: Your business needs a website to succeed. Verify that your business name is available as a domain before you commit to the name. If the exact name is taken, see if you can get creative by tweaking it slightly, maybe by adding “HQ” or “Co.”

• International fit: If you’re planning to go international or appeal to a wide audience, ensure your name works in other major languages and doesn’t mean something negative or offensive.

How to handle taxes after incorporating

Here are some tips for preparing your taxes after incorporating yourself:

Understand your tax structure

Determine your tax obligations for the business structure you chose. For example, C corps pay taxes separately from the owner. The business is taxed first on its profits. Then, the owner is taxed personally on any income they take from the company, such as dividends or salary.

S corps don’t pay corporate taxes. Rather, profits or losses “pass through” to the owner’s personal tax return and are taxed at the individual rate. If you decide to form an LLC, they also don’t pay taxes at the company level; instead, they report profits and losses on personal tax returns.

Get an Employer Identification Number (EIN)

Once you’ve incorporated in the US, apply for an EIN from the Internal Revenue Service (IRS). This is like a Social Security Number (SSN) for your business. You use it to file taxes, open a business bank account, and hire employees. You can get one online from the IRS for free.

Set up estimated tax payments

As a corporation owner, be ready to pay estimated quarterly taxes. Your business income isn’t subject to withholding (like a paycheck is). Therefore, each quarter, you need to estimate how much your business is earning and pay a portion of your expected tax bill.

Some small corporations don’t have to pay quarterly taxes, but US corporations that expect to owe $500 or more generally do. If you miss these payments, you could face penalties.

Separate personal and business finances

Try to keep personal and business expenses separate to avoid tax complications and potential legal issues. Open a separate bank account for your business, and use it for all business income and expenses.

Keep records

Keep detailed records of your business income and expenses for tax purposes. Save receipts; track mileage if you’re driving for business; and keep detailed notes on anything that could count as a deduction (such as equipment, rent, and utilities). Consider using accounting software or hiring a bookkeeper.

Know your deductions

As an incorporated business, you can deduct many types of business-related expenses. This might include:

• Rent for an office or workspace
  
• Equipment and supplies
  
• Business meals and travel
  
• Marketing and advertising costs
  

File your taxes on time

US corporations generally must file taxes by March 15 (for S corps) or April 15 (for C corps). Mark your calendar and give yourself enough time to gather your paperwork. If you’re not ready by the deadline, you can file for an extension. However, keep in mind that any taxes owed are still due by the original deadline.

Consider hiring an accountant

A professional accountant can help you navigate the complex tax system, find all available deductions, and ensure you’re staying compliant with tax laws.

What ongoing compliance requirements come with incorporation?

When you incorporate yourself as a self-employed person, freelancer, or solo entrepreneur, you need to take on certain responsibilities. These can help you to operate legally and maintain your business’s standing with the government. Failing to do so could lead to what’s called “piercing the corporate veil,” which means your personal assets might no longer be protected from business liabilities.

Here are the responsibilities you’ll need to manage:

Annual or biennial reports

Even as a one-person company, you need to file an annual or biennial report in most states to keep your corporation or LLC status active. This is basically an update on your business info, such as your business address and officers. If you fail to file on time, you could face late fees or risk losing your business’s good standing, which could lead to penalties or dissolution.

Franchise taxes

Some states charge a franchise tax for the privilege of being incorporated, even if you’re a one-person operation. This isn’t based on your income—it’s either a flat fee or a fee calculated based on factors such as revenue or business size. States including California and Delaware are known for this tax, so make sure you’re aware of your state’s requirements. Even if you’re not making a profit yet, this tax usually still applies.

Registered agent

You’ll need a registered agent—an individual or a service that receives legal notices and important government documents on your behalf. If you’re not acting as your own registered agent, you need to pay a fee for these services. Your registered agent must have a physical address in your state of incorporation, and it can’t be a P.O. box. If this information changes, make sure you update it with the state.

Corporate records

Even if you’re a solo operation, you still need to keep formal records. For example, if you’re a corporation, you need to keep minutes of any annual shareholder meetings. This demonstrates that you’re following the rules of incorporation, which protect your personal assets.

Separate finances

You must keep your personal and business finances separate. You need a separate business bank account and credit card for all your business expenses. This simplifies tax filing and protects your personal assets if anything goes wrong with your business. Mixing your finances could jeopardize the legal protection you receive from incorporating.

Business taxes

You need to pay federal income taxes, plus any state and local taxes. If your income is irregular, you might have to make estimated quarterly payments to avoid penalties. As a solo freelancer or self-employed person, these taxes could include:

• Self-employment taxes for Social Security and Medicare
  
• Corporate taxes, if you’re structured as a C corp
  
• Pass-through taxes, if you’re an S corp or LLC
  

Licenses and permits

If you need any licenses or permits to operate in your industry, make sure you renew them on time. Even freelancers might need local permits depending on what type of work they do. If you work across state lines or internationally, check if there are any additional permits you need.

Corporate documents

If anything about your business changes—such as your name, address, or the way you operate—you need to update your corporate documents and notify the state.

How incorporating yourself affects your liability and personal assets

Incorporating yourself creates a legal separation between you and your business, which means your personal assets (e.g., home, car, savings) are generally protected from business debts or lawsuits. This liability protection is one of the main reasons people choose to incorporate. To keep that protection in place, you need to maintain certain corporate formalities, such as keeping your business and personal finances separate.