Debra has operated a family counseling practice for a number of years as a sole proprietor. She owns the condominium office space that she occupies in addition to her professional library and office furniture. She has a limited amount of working capital and little need to accumulate additional business assets. Her total business assets are about $150,000, with an $80,000 mortgage on the office space being her only liability. Typically, she has withdrawn any unneeded assets at the end of the year. Debra has used her personal car for business travel and charged the business for the mileage at the appropriate mileage rate provided by the IRS. Over the last three years, Debra’s practice has grown so that she now forecasts $80,000 of income being earned this year. Debra has contributed small amounts to an Individual Retirement Account (IRA) each year, but her contributions have never reached the annual limits. Although she has never been sued, Debra recently has become concerned about legal liability. An attorney friend of hers has suggested that she incorporate her business to protect herself against being sued and to save taxes.
Required:
You are a good friend of Debra’s and a CPA; she asks your opinion on incorporating her business. You are to meet with Debra tomorrow for lunch. Prepare a draft of the points you feel should be discussed over lunch about incorporating the family counseling practice.