Edmonton accounting firm | considering incorporation
Business owners do not have to incorporate their business according to Edmonton accounting firm. And many people resist incorporating their business. Because of the perceived additional costs associated with maintaining a corporation.
And while it is true, the financial year and is often more expensive. And also, the cost of doing the accounting month-to-month can be more money. However, business owners should also realize that incorporated businesses pay less in taxes.
In fact, in Alberta the highest personal tax rate is 48%. And proprietors can end up paying up to 48% in taxes. Because when they are proprietor. Money they earn is considered personal income.
However, for all incorporated businesses, the tax rate in Alberta is only 11%. Meaning incorporated businesses can save up to 37% in taxes. Typically, Edmonton accounting firm says that once a proprietor earns fifty thousand dollars per year in net income.
The tax savings alone from incorporating, out way the cost of doing the financial year-end. And doing the monthly accounting for an incorporation.
What this means, is if business owners are doing this simply to save money. If they are earning over fifty thousand dollars a year. They are not saving anything. And end up owing more money in taxes than they save.
However, saving money is not the only reason why people should consider incorporating their business. There are many reasons why business owners should consider doing this. Over and above the taxes that they will save.
One of the first things that accountants suggest proprietors consider. Is that some companies that they would like to work for as a contractor. May refuse to hire them simply on the basis that they are proprietors.
The reason why, is because businesses that hire proprietors run the risk of having those contractors be considered employees by Canada revenue agency. And if this is the case, the business itself holds the entire risk. And if Canada revenue agency does determine that their independent contractors are employees. There will be several things that the company ends up owing.
The first thing that they will have to do if they have CRA deems their independent contractors are employees. Is they have to pay back all payroll remittances including income tax, CPP and EI. Dating all the way back to the first day that they hired that proprietor.
If a business owner has been working for a company for several years, that can be several thousand dollars that they end up owing the government. However, in addition to that. Edmonton accounting firm says the company can also owe the proprietor vacation and vacation pay, and even severance just to name a few things.
Therefore, many companies who are hiring contractors. May simply insist that all contractors have incorporated businesses. Even before they will consider hiring that company. So by incorporating, many businesses will end up being able to qualify for jobs. That they were not able to take before.
While one of the largest reasons why business owners might want to consider incorporating. Is the fact that they can end up saving a significant amount of money. There are also many other reasons why business owners of proprietorships should consider incorporating sooner rather than later.
What can your Edmonton Accounting Firm do for me?
There is no rule in place saying business owners must incorporate says Edmonton accounting firm. And especially when a business owner starts running their business as a part-time job. They may not know when the best time to incorporate is.
However, there are many benefits to incorporating a business. That is until an entrepreneur sits down with their Edmonton accounting firm to do their taxes. May not realize all of the other benefits they can gain through incorporating their business.
One of the most significant things that proprietors should keep in mind. Is that while they are operating their business, new matter how low risk they think it is. They run the risk of being sued.
While construction companies, or contractors might to run the highest risk. Even very low risk businesses such as graphic designers for example. Do not have an absolute zero risk either.
When running a proprietorship. If business owners do get sued. They could lose their assets, including their home, their vehicles and even their savings.
Once they have incorporated their business however. It gives entrepreneurs limited liability. While this does not guarantee people who sue them will not get their assets. It makes it significantly more difficult. And typically offers far more protection in case of the worst-case scenario. Then if they were operating a proprietorship.
If business owners want to protect their assets, and more importantly protect their family. They should talk to their accountant about incorporating their business. So they can limit that liability. And give themselves peace of mind.
Another benefit of incorporating that many proprietors may not initially realize. Is that incorporating their business will protect their tradename. Many proprietors think that registering their tradename at corporate registries is enough to protect this name.
However, it is considered more of a placeholder. And cannot stop another company from incorporating under that name. Once the business owner incorporates, it legally protect their tradename. And for that reason, many business owners may want to incorporate sooner rather than later.
Another important reason why business owners may want to incorporate their business sooner. Is if they are ever going to need financing, or a loan. Any financial institution or bank. Is going to want to see that the business is incorporated. Before they loan that money to them.
Therefore, if an entrepreneur is ever going to need to purchase assets for their business to help them grow. Or if they ever want to do something like buy a building to operate their business out of. Incorporating now, means that they can qualify for business loans later.
There are so many reasons why business owners who have pride or ships should incorporate. And ultimately, they can talk about all of the pros and cons with their Edmonton accounting firm. But once they know all of the reasons why they should incorporate their business. It may be a much easier decision to make they previously thought.