The Best Time to Incorporate Your Business: Key Considerations with Calvin Hexter & Steve Tsonev
Calvin: I am here with my good friend, Steve Tsonev. Steve, how you doing?
Steve: Good morning, Calvin. I’m doing well.
Calvin: You have so much valuable information, and you’ve helped so many clients in the real estate space, even outside the real estate space. Steve, one of the most common questions we get with those that are investing in real estate, whether you’re a beginner, intermediate, is when is the right time to incorporate?
Steve: That’s a great question. Usually, we look at the cost benefit analysis of what is it worth it for you to incorporate. We try to come up with a number of how many properties, or how much money you will be making in your business to justify incorporating, because a corporation does come with extra costs. So it would be important that you consult with someone that specifically knows your unique situation, and we can give you a number that tells you when is a good time to actually incorporate. Generally speaking, there are other considerations. If you want to isolate liability, or potentially you want to sell a piece of your business later on, having a corporation may be justified earlier on, and having that extra expense would be incorporated into your calculations, essentially.
Calvin: Steve, do you have any recent stories of success that you’ve had with clients? And I know, just like any professional, there’s various different levels of accountants. There’s really good, I would say like yourself, and then I also think there’s really bad, or those that are brand new, or don’t care. Now, do you have a recent story where you were able to offer that wow experience to a client?
Steve: And first, I’d like to say just that some people specialize in specific areas. So I would say I specialize in real estate. There could be other lawyers that specialize in family matters, or trust setups, and things like that. For myself, what I’ve noticed in the last year, and doing a lot of tax returns for individuals with rentals, is the misunderstanding and miscalculations between what is a current expense and what is a capital expense. And very often when there is something that was tagged as capital, but it could actually be claimed as current, and it could result in significant money left on the table.
And a perfect example is a client that we helped this past year. We’ve identified that they incorrectly claimed capital expenses when they were actually current. So we were able to recover for two tax years, 2022 and 2023, approximately $14,000. And that is a lot of money. That is money that they could be using to put towards their next down payment and buying their next property. So I would say that is definitely a really good success story.
Calvin: Amazing. I love it.
