Edmonton Accounting Firm | Advantages of Incorporating a Business
It is very important that new business owners understand what the benefits of incorporating are according to Edmonton accounting firm. Many business owners are aware that there is an additional cost. Both in the incorporating fees. As well as what their requirements are for accounting.
However, without truly understanding what benefits they will gain from incorporating their business. They often make the mistake of deciding not to incorporate. And their business right stall its growth because of it.
One of the first things that business owners should take into consideration. Is that they may not be able to get a WCB number if they are not incorporated. Since this WCB number is needed to go onto most job sites. It is very important for business owners that are contractors to get one.
They might make the assumption that the prime contractor will be able to extend their WCB coverage to them. But this is rarely the case according to Edmonton accounting firm.
So by incorporating. Business owners will be able to get that WCB number that they need. To be able to take any job, on any jobsite they want.
Business owners should also take into consideration. That it is some companies policies to refuse hiring sole proprietors. The reason why they have this policy is to protect themselves.
When hiring proprietors as a contractor. These companies run the risk of having those sole proprietors deemed their employees by Canada revenue agency.
When this happens, they will have to pay all payroll remittances such as income tax, CPP and EI. Dating all the way back to the first day that the sole proprietor was hired to work for the company.
This can equal several thousand dollars. Which is why many companies simply created the policy to never hire sole proprietor. So that they never have to run the risk of owing payroll taxes to Canada revenue agency.
Therefore, when business owners are not incorporated. They may lose out on several bids due to this policy. Which is why the recommendation is for business owners to incorporate sooner. So that they do not lose out on jobs.
Incorporation is also a way to protect a business owner’s personal assets. They may not take this into consideration. But as a proprietor. If they get sued while conducting their business. It is their personal assets that are at risk.
Even very low risk businesses such as graphic designers still do not have a zero risk to running their business. And Edmonton accounting firm says that even getting in their car to visit a client can end up with a lawsuit if something happens.
If an entrepreneur has personal assets like home that their family lives in. Or investments that are earning them additional income. As assets are at risk if they are proprietor.
Therefore, incorporating early. Can help protect those assets. Because the corporation holds that liability instead of the business owner. It protects the business owner, and their assets to a large degree.
Because all the benefits of incorporation. From being able to take a wider variety of jobs, and be hired on as contractor by many more companies. As well as protecting themselves.
Should convince the business owner to incorporate their business sooner rather than later. So that they can earn more money, and grow their business faster.
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Business owners may not realize all of the various costs that they are going to incur when they start their business says Edmonton accounting firm. And in an effort to minimize costs wherever possible. Many small business owners avoid incorporating. Because of the additional costs it represents.
The goal is to incorporate later on when they have more money. But after is cussing this with their Edmonton accounting firm, find out why that is not a recommended approach.
Proprietors need to understand that since they file their business taxes along with their personal taxes at the end of the tax year. Their business income gets taxed at the personal tax rate.
Initially, this might not seem like a big deal. Or it might not seem like a lot of money when a business is quite small. However, so proprietors should take into consideration what the highest personal tax rate in Alberta is.
The most personal taxes that an Albertan will pay is 48%. With the average Canadian paying 43% in personal taxes. Therefore, proprietors can end up paying almost half of their business income in personal taxes.
This starts sounding like a lot more money, and the more money that a business owner makes. More money will be taken by the government in taxes.
However, once a business incorporates. They will get taxed at only 11%, matter how much money their business earns. This can be up to 37% savings in taxes on their business income. Which can add up to a significant amount of money quickly.
In fact, it only takes an entrepreneur earning fifty thousand dollars in net income each year. In order to make it cheaper to incorporate. Then to continue paying a personal tax rate on their business income.
The recommendation is for business owners to incorporate well before that fifty thousand dollars threshold. So that they do not inadvertently go over that amount in a year. And end up paying significantly more in taxes than they should have.
However, saving taxes is not the only benefits of incorporating. And if business owners ever want to qualify for a bank loan. They should incorporate sooner as well.
Most banks and financial institutions will not loan money to sole proprietorships. So if a business owner is ever going to require financing or loan. In order to purchase assets that will help them grow their business such as equipment or machinery. Or if there ever going to buy a building to operate out of to save money.
Business owners should incorporate well in advance. So that this does not become an obstacle to overcome. When they are ready to apply for financing.
Financially, incorporation makes a lot of sense says Edmonton accounting firm. Even when taking into consideration the costs associated with corp rating, as well as the increased accounting fees for the additional reporting requirements.
The sooner business owners incorporate their business. The sooner they can start growing their business, without having to worry that they will end up paying more in taxes as a proprietor.