Edmonton Accounting Firm | Incorporating Can Help Businesses Succeed
There are many things that business owners should take into consideration when they start their business according to Edmonton accounting firm. And one of those things should be if they should operate as a corporation or a sole proprietor.
While there is no tax laws governing when a business owner should incorporate. Or how long a business owner can operate as a sole proprietor.
There are many different things that business owners should take into consideration. To help them make the decision that is most beneficial to themselves. As well as to their business.
The first thing that business owners should consider, is how incorporating can impact their business. The first thing that Edmonton accounting firm will mention, is that incorporating can help entrepreneurs get WCB number.
That is extremely important, if they are independent contractors wanting to get hired on work on a job site. Most prime contractors or businesses will require all subcontractors to have WCB in order to set foot on site.
If business owners are sole proprietors. WCB may not grant them at number. Which will negatively impact their ability to work on a wide variety of job sites.
Therefore, if a business is never going to need to be on a jobsite that requires having WCB coverage. Should think about incorporating sooner rather than later.
Another reason why Edmonton accounting firm would suggest entrepreneurs should incorporate. Is because some companies will actually flat out refuse to hire sole proprietors.
The reason why, is because those companies run the risk of having Canada revenue agency consider those sole proprietors as employees instead.
That means companies that have hired sole proprietors may be required to pay payroll remittances dating all the way back to the first day that the contractor was hired.
This can equal thousands of dollars. Especially if they have used that contractor for many years. This is why many companies will simply refuse to hire sole proprietors. Meaning the moment they incorporate. They will be able to accept jobs from a wider variety of places.
In addition to being able to be allowed on more jobsites as an incorporated business. There is also other benefits to incorporating. One of the first benefits is being able to protect themselves against a lawsuit.
Sole proprietors are legally liable if someone sues them while they are operating their business. Which means it is their personal assets and personal finances that are on the line during that lawsuit.
This is why many businesses incorporate. Because that company holds liability in standardized of the directors of the company. While this does not eliminate the risk to the directors to zero, and makes it far more difficult for them to be personally affected by any lawsuit brought upon them.
And while many entrepreneurs might think that they have a very low risk business. There is no business out there who is risk is zero. So by incorporating. They are protecting themselves. And the benefit of that protection is often worth the price.
By incorporating their business. Many proprietors can end up benefiting significantly. By being able to take more jobs than they would have before, and protecting themselves against lawsuits. This makes incorporating a very attractive option for many sole proprietors.
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Many sole proprietors think that incorporating their business is huge cost with very little payoff says Edmonton accounting firm. And while there is costs associated with incorporating their business. And the additional accounting that is required when a business incorporates.
There is also a lot of benefit that businesses can enjoy by incorporating. Mainly, saving money on taxes. Since sole proprietors end up submitting their business taxes along with their personal taxes.
They must pay a personal tax rate on their business taxes. And while this might not initially sound like a very bad thing. Business owners should consider that the highest personal tax rate in Alberta is currently 48%.
While the tax rate for incorporated businesses is just a mere 11%. Therefore, depending on how much money an entrepreneur makes per year. They could save up to 37% in taxes every single year. That could add up to a significant amount of money.
So even though incorporating has a fee associated with it, and there is additional reporting that they need to pay for as well as a more complex year-end. Business owners can end up saving more money each year in taxes. Then they would pay in incorporating and reporting.
In fact, Edmonton accounting firm says that business owners do not even have to be making a significant amount of money in order to save more in taxes than they spend in incorporation.
For example, most accountants agree that the general rule of thumb. Is that fifty thousand dollars is all nor has to make. In net income in one year. In order to make incorporation a minimal expense compared to the taxes they save.
If entrepreneurs are getting close to that threshold, or if they have reached it and surpassed it. They should contact their Edmonton accounting firm immediately. To talk about if it is cost effective for them to incorporate now.
In addition to being able to save taxes, incorporating will make businesses able to apply and get loans. Because financial institutions and banks typically will not grant loans to unincorporated businesses.
Regardless of the reason they might need to get a loan, from purchasing assets that are going to help them sell more products, or double their outputs.
Or if business owners need to buy building. In order to increase their profits and remain viable in business.
Therefore, if business owners can ever foresee them needing to apply for a loan. They should talk to their accountant about incorporating now. So that when it is time to apply for those loans.
They do not have to stop. In order to incorporate their business so that they can be more likely to be approved for those loans.
There so many benefits to incorporating their business. That any proprietors that are resisting incorporating. You should find out the facts for themselves. So that the decision to make can be an educated one. And that there must suffer as a result.