Edmonton Accounting Firm | Incorporating Helps Entrepreneurs Grow
When business owners are operating a proprietorship says Edmonton accounting firm. They may not realize that they are paying more in taxes at the end of the year. Then they would if they incorporated their business.
In fact, many people start their proprietorships. As a side business. But as their side business has grown into a full-time job. They have not changed the structure of their business.
And while many proprietors often think that it is easier and less expensive to continue operating a proprietorship. Because not only will they be able to do their business year-end taxes. Along with their personal taxes.
But also, because it is less expensive to do a financial year end for proprietorship. Then it is to do a year-end for corporation.
However, business owners should be looking at how much they would pay for incorporating, doing their monthly reporting. And their year end filing. Alongside how much more they are paying in taxes for operating a proprietorship.
In fact, according to Edmonton accounting firm. Proprietors must pay a personal tax rate for all of the income they earned in their proprietorship. In Alberta, the highest personal tax rate is 48%.
However, for businesses that are incorporated. That tax rate is only 11%. Which means proprietors can end up saving up to 37% in taxes simply by incorporating.
Although, that does not always mean that entrepreneurs are making that large amount of savings. And in order to determine if they are paying more in taxes then they would if they incorporated. They should set up a meeting with their Edmonton accounting firm. To find out all of the facts with their specific business.
However, generally, businesses that are earning fifty thousand dollars a year in net income. Will end up paying more money in taxes then if they incorporated their business.
Therefore, businesses that are making fifty thousand dollars a year in income before paying themselves. Or more. Or even if they are approaching that threshold.
They should set up a meeting with their accountant right away. To see about if they should be incorporating, and how they can get that accomplished.
In addition to saving up to 37% in taxes. Many proprietors are also not aware of additional taxes that they have to pay as a proprietor.
For example, many proprietors may not realize that they have to pay both the employee and the employer contribution for CPP.
This means that at the end of their tax year, they might be hit with a tax bill of over five thousand dollars. That they were not even expecting to pay. In this also needs to be factored into the calculation. On whether they are going to see a benefit financially from incorporating or not.
By having a conversation with their accountant about their business. Working at their finances. Can help entrepreneurs make the decision on if it is in their best interest to incorporate. Or if they should continue operating a proprietorship.
By getting the facts for their specific business. Can help entrepreneurs make the decision. On whether they should incorporate their business. Or continue to run as a proprietor.
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Some entrepreneurs start operating their business on the side of their full-time job says Edmonton accounting firm. And because they are not making a lot of money in their business yet. Decides to operate their business as a proprietor.
However, as their business grows, they do not revisit looking at incorporating their business. It can impact their ability to grow their business for a number of ways.
The first thing that business owners need to understand, is that if they do not incorporate their business. They can limit the number of businesses that will hire them as an independent contractor.
Some companies simply refused to hire proprietors. Because of the risks associated with hiring independent contractors that are not incorporated says Edmonton accounting firm.
If Canada revenue agency deems independent contractors that are not incorporated to be employees of the business. It is the company that hires the contractors that hold all of the risk.
If Canada revenue agency believes the proprietors should have been deemed employees. The company needs to pay the government all of the payroll remittances that would have been do for that contractor. Dating all the way back to the first day that they started working for the company.
This means income tax, CPP and EI. That could be owed going back several years. Depending on how long they have worked with that contractor. This could be several thousand dollars.
Therefore, a lot of companies simply refuse to hire independent contractors that are not incorporated. In order to eliminate this risk.
It can be very difficult for business owner to try and grow a business, that is not able to work in many job sites. Or would have to refuse a significant amount of work.
In addition to that, they can be difficult for a contractor to get a WCB number. If they are not incorporated. The reason why, is because WCB may consider contractors as subcontractors. And can work under the prime contractor and their WCB number.
However, most prime contractors who are hiring a subcontractor will not cover them under their own WCB number. Making proprietors unable to take a lot of jobs, due to this problem.
However, once they incorporate their business, the WCB will consider them a prime contractor. And will not have a problem issuing a WCB number to any corporation.
Therefore, if business owners incorporate, they will be able to work in a wider variety of job sites. Because they will not be having to turn down a job because they are not incorporated, and may be considered employees of the company. And because they do not have a WCB number.
Just by being able to accept more jobs, which will help facilitate their ability to grow faster. Edmonton accounting firm says that if proprietors. Want to be able to find more jobs. Incorporating can help ensure that business owners can accept more jobs. Are more likely to grow their business. Then if they did not incorporate at all.