I don't see any advantage in incorporation if you want to run your own private business, but I'm willing to accept that I'm being the weirdo here.
Probably more important, although I didn't realize it at the time, is that being a corporation gave Tarsnap more credibility, especially when dealing with other corporations. I saw a sharp increase in the number of large users of Tarsnap after it I incorporated it.
tl;dr: if you do something commercial as a sole trader and not as a company, it's possible for you to be sued for your personal assets.
(Yes, it merely takes an publicly available work that the users could download themselves, and makes it available to each individually. That's essentially what Aereo did, and look at them now.)
If I was building an Internet of Things blender I would incorporate in a heartbeat.
If so, I have to say, that would make me a lot more concerned as a customer.....
Moral: back up your bookmarks.
In most jurisdictions, if you have control of a company (e.g. as the majority shareholder and director), and the company does something "bad" to the extent that it's illegal, the liability protection can be waived. Selling a self-driving car, in the knowledge that its behaviour is inadequate and would cause harm, may well result in loss of liability protection.
In short, insolvency is generally protected, but "bad things" often have less protection.
* Same goes for anyone who sues you.
* Business partners and clients won't deduct taxes from your invoices, but often will if you're a sole proprietor.
* If you ever have employees and later liquidate the company, you can have arranged in advance for them to get a portion of the proceeds, which may or may not be motivating earlier on in the company.
Maybe few of these apply to you, since if you get sued you'll surely just flee to Antarctica to snark from amongst the penguins, who are likely to be the only employees you'll ever have either way.
In my opinion incorporating only makes sense if you have multiple cofounders and want shared ownership, or if you get investment etc.
If you are running your business alone, I don't see the point of incorporation.
Limited liability doesn't magically protect you from lawsuits. But it does cost a lot of money (obviously this depends on location, but even if it's cheap to register a business somewhere, all the accounting and minimum taxes and reporting etc sum up).
I run my company as a sole proprietorship, and I'm not planning to incorporate any time soon.
I've seen people waste thousands of euros on incorporating and setting up a company, only to close up again a year later... what a waste of time and money...
I spooked myself into starting the process with LegalZoom at some point, but then couldn't figure out how to transfer assets, and then I got real sleepy.
Just saying. :)
As you can imagine, there is a ton of bookkeeping and bureaucratic pain associated with having an S-corp (like pretending to have annual meetings, and having to write minutes for them).
I don't think this is true. If you buy an ice sculpture for the office lobby, it's totally tax deductible (it's a business expense), but you can use money for whatever you want if you take it out of the bank as a "distribution" instead of a "paycheck." In that situation, you still pay income tax on the money, but not the other taxes.
So I think the trick here is, you pay yourself $70k in salary, but issue yourself a $30k profit sharing distribution.
Respectfully: it's also unethical, if you think about it carefully. Pay full freight on your payroll taxes: if you make so much much money that this dodge is material to you, you're the last person who should have a loophole to take advantage of.
Still, I totally agree that it's unethical.
Ha! "But foobar22 on the internets said it'd be okay if I claimed X as a deduction? Why am I being auditing?!"
There should be a global disclaimer when you sign up for an HN account that tells you to listen to your lawyer, your doctor, your accountant ...
Regarding your first paragraph, I'd agree that "claiming a low income" is a bad idea, and not just because it's illegal. Regarding the audit business, my accountant seems pretty confident that a straightforward tax return without too much any weirdness (real estate, huge equipment costs, etc.) is fairly safe from auditing, if I'm paid a salary that a software developer in my position might expect to make.
Regarding your second, more important paragraph: I'm pretty sure I disagree about it being unethical. I think the tax code is depressingly regressive, and I'd legitimately feel like I'd shirked a duty if I just ducked out on money I should have paid. I believe in the power of government, and having the money to back it up is important.
That said, the government decides what's taxable, and which actions should be incentivized. There are plenty of breaks that I probably "shouldn't have": Why do I get to pay less tax because I own a home, or because I got married? Why, as a "small business owner," can I deduct the cost of my insurance premiums, but employees can't? It seems silly, but I'm certainly not going to file at the single rate instead of the married one.
There are years and years of precedent about S-corporations paying shareholder-employees;[0] the "reasonable" salary bit comes up every time. The mental model I've been using has been: How much of this money am I making because I'm a developer, and how much is here because I run my own business? If my annual salary would be, say, $110,000 as a W-2 employee at some big company, but as a contractor I can bill $180,000 a year, I'd say the business grossed $70,000 farming out the work of a $110,000 programmer. To a certain kind of shop, working as a contractor is a valuable service: Companies don't have to go through the hassle of dealing with an employee, only a purchase order. Still, SOMEBODY has to deal with that hassle: Now, though, it's me.
[0] https://www.irs.gov/businesses/small-businesses-self-employe...