There are many reasons to incorporate your business or form an LLC. Along with shielding your personal assets, you can also benefit in another big way as a small business owner. You may be missing out on big tax breaks by not incorporating your business. Here are some ways to save money on taxes by forming an LLC or corporation.

Spread Losses Over Years

One of the unique benefits of a corporation is the ability to carry business losses forward. This means you can lower your taxes every year over which you spread your losses. As an example, let’s say your company loses $50,000 in 2015. You can choose to carry these losses forward (usually for up to 7 years). If you make $80,000 in 2016, you can apply a portion of your losses to your income, lowering your taxable income for 2016.

Reduce Self-Employment Taxes

Sole proprietors generally pay self-employment taxes, which includes Medicare and Social Security taxes, on top of state and federal income taxes. In 2015, the self-employment tax rate is 12.4% on the first $118,500 of net income plus 2.9% on every net dollar earned. If you incorporate, you can instead take a reasonable amount of the company earnings as a salary and this salary is not subject to self-employment taxes.

Lease Assets to the Corporation

As an owner in a corporation, you can choose to lease assets you personally own to the corporation to reduce your taxes. Many small business owners lease their personal vehicle to their corporation, but this can also apply to office space, computer equipment, and more. When you lease assets, your business pays a lease fee which you claim as rental income.

Flexible Taxation

If you choose to form an LLC, your entity will automatically be treated as a pass-through entity by the IRS. This is the same tax treatment as a sole proprietorship and it means that your business income and losses are reported on the personal income tax returns of owners. Still, you can choose to be taxed as a corporation, which may have benefits in certain circumstances. If you incorporate, you can avoid double taxation on dividends and profits by qualifying for and choosing Subchapter S tax status, which is referred to as a S Corporation.

Deduct Fringe Benefits

As you can see, incorporating or forming an LLC can do far more for you than protecting your personal assets and it may be worth the additional paperwork and modest cost. You can learn more about the benefits of incorporating by speaking with a corporate services company or attorney.