It depends on your situation and your business.   First, let's get a question that I get asked a lot out of the way, no, you don't have to incorporate to have a business.  You may want to incorporate or form a LLC (limited liability corporation), but you don't have to.

My personal rule of thumb is that if you are just starting out with your business and aren't sure if you should incorporate or not, you should incorporate or form a LLC if:

• if someone can sue you and take something big from you like your house or some of your money, and/or

• if you have a risky home business such as car pool services, child care, etc.

If you're really in debt and are just doing a 'little' home business to make some extra money then personally I don't think you need one. (Please know though that this is just my opinion, don't take it as the business gospel.) 

• Pros and Cons of Incorporating

• Pros and Cons of LLC's

• Best Place to Use to Incorporate

Pros and Cons of Incorporating

For those who are forming a work at home business the good things about forming a corporation are:

• Reduces personal liability - if something happens during the course of your business, the corporation gets sued, not you so the corporation's assets get taken not your own personal assets. (Note:  you have to make sure you comply with ALL the regulations of having a corporation in order to receive this protection.)

• You can deduct employee benefits (such as insurance)

Cons of forming a corporation:

• Quite a bit of paperwork involved:  board of directors annual meeting, meeting minutes, etc.

• Taxed twice on your earnings - Corporation is taxed on them and then when they distribute them to you as a paycheck you are taxed on it.

Who a Corporation is good for:  people who have something to lose such as a house or a big nest egg if something goes wrong with a product or service they sell, people who have a risky home business such as car pool services.

By far the best and cheapest place I know of to incorporate is Legal Zoom.  This is Robert Shapiro's company (OJ's attorney) and they do excellent work and are cheap. 

Bonus Tip:  if you need a will, divorce papers, etc. you can get them done there really cheap.  

Note to those in California:  if you form a LLC or incorporate you have to pay a fee every year for it.  I believe that fee is $800 and you are responsible for this fee whether you make money or not.