Forbes columnist Jim Blasingame says while many small businesses and day trading companies may start out as human businesses - such as sole proprietorships or partnerships - there may come a time when it makes sense to change that.
Blasingame says there are a number of reasons why traders may want to consider incorporating their company as either a corporation or a limited liability company. The first of those reasons is that the business could become eligible for additional tax deductions or other benefits.
A business owner may also benefit from the liability protection afforded them by the corporate structure. For those operating as a sole proprietorship, any claim against the company is also a claim against the business owner themselves.
After incorporating, Blasingame says business owners should follow several steps to maintain those protections. He says traders should be sure to tell all suppliers or other contacts the business is a "non-human entity," include it in all documentation, keep separate financial records and follow proper documentation procedures.
He adds many other firms may not take a business as seriously if it is listed as a sole proprietorship.
The same may be true with the Internal Revenue Service, particularly for traders. The IRS' guidelines about what qualifies someone as a professional trader are somewhat vague. In some situations, it may be useful for traders to incorporate in order to portray their professionalism to the agency.
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