Edmonton Accounting Firm | How Does Incorporating Help Business
Many business owners may not consider that incorporating is going to help them says Edmonton accounting firm. And often end up assuming that incorporating is costly, and will make it more challenging to run a business. Due to the increased reporting requirements.
However, while there is a cost to incorporating. And their year-end tax return will take more time. And they will have to report monthly to the government. That does not necessarily mean that there is no benefit to their business.
In fact, incorporating has so many benefits to a business. That entrepreneurs should consider incorporating their business sooner rather than later. So that they can enjoy the benefits that incorporating gives them.
The first thing that proprietors should consider when they are looking at incorporating. Is tax rates. Since proprietors must file their business tax return along with their personal tax return. They also have to pay personal tax rates on their business income.
While this might not seem like a big deal, the highest personal tax rate in Alberta is currently at 48%. Meanwhile, the tax rate that incorporated businesses have is only 11%.
Therefore, business owners can save a significant amount of money on taxes just by incorporating. Whether this money that they save will financially offset the costs of incorporating, monthly reporting and doing their financial year end. Depends on how much money they make in a year.
The typical rule of thumb is once an entrepreneur is making about fifty thousand dollars a year in that income. Before they pay themselves. They tend to pay more in taxes as a proprietor. Then the costs associated with incorporating their business.
In order to verify that this is the case for their business. Proprietors should make an appointment with Edmonton accounting firm. In order to look at their business personally. In their financial situation. This see if it makes financial sense to continue operating as a proprietor.
There Edmonton accounting firm will also likely point out things that they may not know. Such as as a proprietor, they will have to pay taxes that they may not even realize.
Such as having to pay both the employee and the employer contribution for CPP. This can actually add up to a significant amount of money, more than five thousand dollars a year. That if they are not aware of it, can be extremely difficult for a proprietor to pay.
Therefore, their accountant will be able to help them understand all of the costs associated with the taxes that they have to pay as a proprietor. Versus the tax savings they can enjoy is a corporation.
Even by paying all of the additional fees for their corporate year-end, and the accounting fees they have to pay monthly. It can still be far more beneficial to incorporated business.
The sooner an entrepreneur understands this. The sooner they can make their plan to corporate their business. So that they do not have to worry that they have gone over that threshold, and are paying more in taxes. By not incorporating their business.
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While many proprietors think that incorporating is just a matter of saving taxes says Edmonton accounting firm. And while it it can help many entrepreneurs save taxes. It is not the only reason why people should incorporate their business.
In fact, incorporating a business can have so many benefits. That even if it is not helping a business owner save on taxes. They may decide to incorporate sooner. For all of the help that their business will get through the incorporation.
The best example of this, is that incorporating a business can help protect an entrepreneur in case they get sued. Since all businesses, no matter how risky or not they are. Can run the risk of someone suing them.
If an entrepreneur ever gets sued while they run their business. If they are proprietor, all of their personal assets and finances are at risk.
However, a corporation offers limited liability. And if the business gets sued, it is the business that is liable. And not the directors of the company.
This means it is the company’s assets and finances that are at risk. And while that does not mean there is zero risk to the directors of the company. The risk is significantly reduced. And is much more difficult for the person doing the suing to access the directors assets.
Therefore, if a proprietor has things like a home that their family is living in, other assets, investments or savings. It is definitely in their best interest to incorporate. So that they can stop being at risk, in case someone sues their business.
Another reason why a proprietor make want to consider incorporating. Independently of financial reasons why my benefit them. Is to protect their tradename. While many entrepreneurs think that going to corporate registries is enough to protect their tradename.
This actually is only a placeholder, and can end up with other companies or people taking that tradename and incorporating it legally. Therefore, Edmonton accounting firm says that when entrepreneurs incorporate. They legally protect their tradename. Which will allow them to own that name indefinitely.
And another great benefit of incorporating a business. Is to allow entrepreneurs to qualify for getting financing, or getting loans. If an entrepreneur needs to borrow money in order to help them grow their business. Such as buying equipment or machinery that they need to increase their capacity.
Or, if they are planning on buying a building. So that they can increase their ability to serve more customers than before. Banks will not issue loans to proprietors.
If a business owner is ever going to need to qualify for financing, or borrow money from a bank or other financial institution. They should talk to their Edmonton accounting firm about incorporating sooner rather than later. So that this does not become a hold up. And they need money in the future.
By understanding all of the benefits that business owners can get simply by incorporating their business. Even if a business owner is not going to save more in taxes to incorporate. It still might be in their best interest to incorporate their business.