Edmonton Accounting Firm | Advantages of Incorporation
While some entrepreneurs start a business by incorporating first says Edmonton accounting firm. Some entrepreneurs are doing it part-time while they hold down a full-time job. And they are sure if they are going to do it long term. Which is why they might avoid incorporating their business at first.
Since there is a cost associated with incorporating their business. Along with monthly reporting requirements. And a more complex year end for their Edmonton accounting firm to work on. Many entrepreneurs see incorporation as an expense.
In addition to thinking that incorporating is an expense. They also do not understand the benefits of incorporating. Which makes it seem like an expense that they would incur for no reason.
Therefore, when Edmonton accounting firm can explain to proprietors the benefits of incorporating. They will be far more likely to incorporate their business, and benefit significantly.
One of the first things that business owners should understand about incorporation, is that it will protect their business and themselves. Since all entrepreneurs run the risk of a lawsuit as they operate their business. Even in extremely low risk businesses.
If for any reason a company gets sued. If they own a corporation, it is the corporation that is liable, and not the directors. That means that while they company might have their assets or their finances at risk. The business owner themselves will not.
If the business owner has assets or finances for themselves. Such as a family home, vehicles or investments. Those things can be at risk if they ever get sued. That can result in having their family home repossessed. And so to avoid risking becoming homeless. Many business owners decide to incorporate instead.
Another benefit of incorporating. Is that it is going to protect their tradename legally. Many business owners assume that registering their tradename at the corporate registries office will protect them. It actually is a placeholder, and not a legal protection.
Which means other companies, or people will be able to incorporate with that name. Even if the business owner has been using it for years.
In addition to protecting their assets, and their name. Incorporating will allow entrepreneurs to get a WCB number. That will allow them to work on a wider variety of job sites. Then if they were a sole proprietor instead.
Since WCB does not usually give numbers out to businesses unless they are the prime contractor. By incorporating, eliminating the risk of being denied WCB number.
Many business owners might even be denied bidding on a job because they are proprietor. Because many companies refuse to hire independent contractors that are not incorporated.
The reason why, is because some companies can run the risk of having independent contractors be considered employees. If they own proprietorships instead of corporations.
This risk can have companies having to pay the government all of the payroll remittances that they would have owed, if that person was claimed an employee from the beginning.
That can be a significant amount of money that they have to pay. So to minimize that risk. Many companies simply say no independent contractors who are not incorporated should be allowed to be hired.
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The reason why many business owners not to incorporate their business quickly according to Edmonton accounting firm. Is because they do not want to incur the cost. Because they do not understand the benefit.
And one of the main benefits of incorporating. His saving money on taxes. In fact, business owners should take into consideration that proprietors will have to file their business taxes with their personal taxes. And be taxed at the personal tax rate on their business income.
And while that might not sound like a bad thing initially says Edmonton accounting firm. Proprietors should take into consideration that the highest personal tax rate in Alberta is currently 48%. However, the tax rate for businesses that are incorporated is only 11%.
That means that as soon as a business incorporates, they could potentially save up to 37% in taxes. However, many entrepreneurs think that they would have to make hundreds of thousands of dollars to make that kind of savings. So even if they understand it can be a benefit. They still do not think it applies to them.
However, the general rule is once an entrepreneur is making fifty thousand dollars a year in net income. Before paying themselves, it is cheaper to pay the fees and the accounting costs associated with incorporating.
Then it is to pay the additional taxes that they would have to pay as a proprietor. By understanding how much of the tax savings they would get. And that what threshold they can start saving that money. Can help entrepreneurs understand when is the best time for them to incorporate.
In addition to saving taxes that way, many entrepreneurs may not realize all of the taxes that they have to pay as a proprietor as well.
For example, proprietors will also have to pay the employer and employee portion of CPP. They might find out at the end of the year that they owe a tax bill of fifty-two hundred dollars more than they realized. And if they were not aware of this ahead of time. It can be very difficult to pay.
In addition to that, business owners who are proprietors will typically not get approved for the loans from financial institutions or banks. But by incorporating, can help them get they financial help that they need. To purchase the assets or buildings that they need to grow their business.
Therefore, by understanding all of the taxes that they can save by incorporating. Can help proprietors make the best decision for their business and themselves.
Incorporating can help business owners save taxes. But it can also help them protect their assets, protect their tradename. Land more jobs by being able to get hired on at more jobsites, and by more companies.
In all these things work out to helping entrepreneurs save money, and grow their business effectively. This is why Edmonton accounting firm recommends that businesses should incorporate sooner rather than later. So that they do not stall the growth of their business. By being unable to work on the jobs that they thought they could. And by saving taxes.