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2. At what point should someone running some affiliate and ad-based sites consider incorporation, if ever?
TIA
Generally the advantages to incorporation are two fold:
A third benefit is the perception (of some people) that a "company" is "better" than an individual, more permanent somehow. People are weird.
The disadvantages are cost of incorporation and increased red tape.
The only disadvantages I can think of are the fees for incorporating (which vary by state) (also deductible) and the requirement that you hold/report an organizational meeting atleast yearly.
My experience is that my perspective shifted dramatically when I became an incorporated business owner.
Good luck.
That said, this is what I have found out from my work as a consultant and small time web publisher:
You can incorporate, there are several methods and forms. If it is a small corporation (few shareholders) you would be a "Chapter S" corporation, tax wise. In this case you pay taxes as if you are a sole proprietorship.
If you don't incorporate, you should form a business. In most areas that means filing a "d/b/a" (Doing Business As), also known as a "certificate for doing business under a ficticous name" with the county. That extablishes that you are a real business, and helps with things like banking.
If you are working by yourself with no employees, liability is a wash (so I am told) because anyone you injure (perhaps driving to a client meeting) can sue either you or your business. If you own the business, you are worth what ever the business is worth plus whatever else you own, so you would be sued.
If you have employees, your business could be sued for their actions. By incorporating, you protect yourself from actions (most likely car accidents) of your employees.
If you are an established business (with a d/b/a) you can deduct all business related expenses. You don't have to be incorporated.
Either way, you should get a small business insurance package. These usually cover liabilities and some other losses.
If you incorporate, get a local lawyer. These services that will provide a Delaware incorporation by e-mail or phone may be cheap at first, but there are many additional expenses.
But most of all, don't trust us, talk to a lawyer.
Advantages: health insurance is 100% deductible; some liability protection; being a corporation allows for ways to pay myself while temporarily avoiding income taxes if I want to.
Disadvantages: my state requires that a CPA do the corporate tax returns; most creditors will still want a personal guarantee unless the company is above x number of dollars in sales; liability can still become personal; double taxation if the corp shows a profit that you later take out as income.
When I incorporated, my then-accountant (notice the past tense) said it didn't matter when I switched from sole proprietor to corporation. It did. I wound up owing $30,000 more in personal taxes than I would have if I'd waited several months.
