Edmonton Accounting Firm | Pay Fewer Taxes by Incorporating
Small business owners often decide to start their business without incorporating says Edmonton accounting firm. Because they think that it is expensive. And that they are not large enough yet.
They also are not aware of all of the different benefits that corporation can bring them. In this can end up with business owners paying more taxes. And putting the growth of their business at risk.
This is why it is very important that when people are deciding to start small businesses in Canada. They should make an appointment with their Edmonton accounting firm sooner rather than later. So that they do not make mistakes early on that could negatively impacts their financial situation.
One of the first things that business owners should take into consideration, is that as a sole proprietor. It will be responsible for CPP taxes. But not just the employer contribution. But the employee portion as well.
Something that proprietors do not often take into consideration. Until they find out too late, and now they owe Canada revenue agency a lot more money than they previously thought.
In fact, they can end up owing over fifty-two hundred dollars a year. And to most proprietors, and small business owners. This is a significant amount of money.
This is just one of the reasons why business owners should incorporate their small business early. Rather than making the assumption that incorporation should only happen once they have been in business for several years. Or have grown to a certain size.
There are even more benefits of incorporation other than saving taxes. And one thing that business owners should understand. Is that incorporating will actually protect them while they run their business.
When proprietors are operating their business, if they get sued for any reason. It is their own assets that will be at risk during that lawsuit.
Even extremely low risk businesses such as web designers. Do not have a complete 0% risk. Which makes it very risky for a business owner to operate as a proprietor.
If they own assets, such as investments that earn them income. Financial savings, or if they own a house that their family lives in. All of these things can be at risk if they get sued while operating their business.
To avoid ramifications such as losing the house that their family lives in. Business owners can simply incorporate. And allow their corporation to hold that liability instead.
This does not mean that the risk to the directors of the corporation is zero. But it significantly lowers that risk. And can help business owners operate their business, without worrying about losing their assets.
Another benefit of incorporation is protecting their tradename. Many proprietors assume that by registering their tradename at the registries office will offer them legal protection of their name.
However, this is just a placeholder. And will not prevent another company from incorporating under that name. Therefore, if business owners want to legally protect the name that they have been building their business under for years.
They should incorporate using that name, that will give them the legal rights to use that name indefinitely.
With all of the benefits of incorporation. If people are even considering starting a small business. They should make an appointment right away with their Edmonton accounting firm.
To talk about the best ways to start their business. Including incorporation. To avoid making mistakes that could cost them more money in the long run.
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There are many different things that people have to think about when they are starting their first small business says Edmonton accounting firm. And often, they have to do it on even less of the budget than they had anticipated.
As a result, they often put off incorporating their business. Taking that this is a way that they can save money initially. However, there are many reasons why business owners should not use this strategy to save money.
Before they even start their business, it is beneficial for entrepreneurs to meet with an Edmonton accounting firm. So that they can plan how they are going to start this business.
The recommendation they will hear is they should incorporate sooner rather than later. For many reasons. One of the most beneficial reasons, is so that business owners can avoid paying more in taxes than they would if they did not incorporate.
Businesses that are incorporated enjoy and 11% tax rate. And while, proprietors will end up paying personal tax rates on their business income.
To understand how much this is, while the highest personal tax rate in Alberta is 48%. According to industry Canada, the average Canadian pays 43% in taxes. So when a sole proprietor gets taxed at that high personal tax rate. That is nearly half of all their business income that is going to the government.
And while many business owners might hear that, and think that they would need to be making hundreds of thousands of dollars to offset the costs associated with incorporation.
The amount that they actually have to make is fifty thousand dollars a year in net income. In order to save more money by incorporating.
However, it is not just saving taxes that can help business owners. By incorporating, they will be able to accept many more jobs than they would as a sole proprietor.
The first reason why that is, is because so proprietors may not get a WCB number. And when they are contractors, they often are not allowed on a jobsite without WCB coverage.
So so proprietors may have to turn down jobs because they are not able to be covered by the prime contractor on site. And that will negatively impact their ability to grow their business.
In addition to that, other companies will simply refuse to hire proprietors. Because of the risk of having them be deemed employees by Canada revenue agency.
If that happens, Edmonton accounting firm says those companies will be required to pay back all the payroll remittances that they would have owed if they were employees. Which can be a several thousand dollars it to that company.
By instituting a policy of hiring only incorporated contractors. They eliminate that risk. Therefore, in order to have the ability to be hired on many more job sites and work for more companies. Small business owners should incorporate. So that their growth is not stalled, by not being able to accept every job that they encounter.
Understanding the benefits of incorporation. Can help entrepreneurs make the decision that is going to be most beneficial for their business. To help them grow and be successful.