Edmonton Accounting Firm | Reasons to Incorporate
Many business owners might start their business as a part-time job according to Edmonton accounting firm. And they do not see the benefits of incorporating their business that early on. However, if they do not incorporate right away. It can become difficult for them to understand when is the best time to go ahead and incorporate their business.
The reason why businesses that are small, or starting out might not want to incorporate right away. Is because the cost of incorporation can be significant, if they have not started turning a profit yet.
In addition to that, businesses who have incorporated will then have to start reporting monthly to Canada revenue agency. And there corporate year-end financials are more complex. Therefore take more time to produce. And that additional time spent by their Edmonton accounting firm can add up financially.
And unless a business is turning a profit. They may not feel compelled to incorporate their business. However, there are many reasons outside of financial ones. On why entrepreneurs should incorporate their business.
One of the first things that business owners should understand, is that if they are running a corporation. The corporation holds the liability instead of the business owner. And since there is no risk-free business. If an entrepreneur gets sued. The corporation will shelter the directors of the business.
Which means the business might lose property, assets or finances. But the directors will be less likely to be at risk. And if directors have homes, assets, savings and investments. If they are running a proprietorship. Those assets will be at risk.
Therefore, even if it costs a business more money to incorporate. It is often in their best interest to incorporate anyway. So that they can minimize the risk associated with getting sued.
Another reason why a business owner should consider incorporating their business. Is so that they can protect their tradename. Many entrepreneurs believe that by registering their name at corporate registries.
Protects others from using their name but this is not true. It will not stop other people from incorporating using the tradename even if it has been registered.
Therefore, if proprietors want to guarantee that no other company can use the name that they have created. The best way to protect themselves is to incorporate.
If proprietors ever want to get financing. Either getting equipment or assets financed through a financing company. Or if they ever wanted to get a bank loan. Banks and financial institutions typically will not loan money. Or extend financing to proprietors.
Since assets and buildings are required to be purchased in order to help a business grow. Proprietors who might ever want to grow their company and get financing. Should consider incorporating their business.
When business owners understand all of the reasons why incorporating their business as a benefits. They can discuss it with their Edmonton accounting firm. And make the decision to incorporate their business sooner. So that they do not stall the growth of their business later.
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When entrepreneurs are starting out, Edmonton accounting firm says they might think it is easiest to simply be a proprietor. Rather than spend the money to incorporate their business.
However, depending on how much money and entrepreneur is making. They may not realize that it is costing them more money in taxes to be proprietor. That it is to simply pay to incorporate their business.
In fact, some proprietors are independent contractors. And are making enough money per year in their business. To make incorporating the sensible option.
Since proprietors have to file their business tax along with their personal taxes. They will be taxed at the personal rates. Which in Alberta tops out at 48%.
However, the tax rate for corporations is only 11%. Making it possible for some businesses to save up to 37% in taxes. In a single business year just to incorporate.
What is even more important for business owners to know. Is that as proprietors, they might have taxes that are surprising to them. Resulting in them owing more money to the government at the end of the year than they realize.
For example, many proprietors may not realize that they have to pay for both the employer and the employee portion of CPP.
This can add up to fifty-two hundred dollars a year in additional taxes that they were not expecting. That adds up, especially when added to the fact that some proprietors might be paying 48% on their business taxes. When they would only have to pay 11% if they incorporated.
However, this still might not convince some business owners. Or they might think that they are not earning enough money to save that much tax. But if they are generating fifty thousand dollars in income net per year.
This is the threshold that most accountants use. To figure out that they are going to save more money in taxes. Then they would pay out for accounting fees. And making incorporating their business the less expensive option.
So not once a business owner incorporates. They often end up paying less in taxes. And even though they end up paying more in accounting fees with their Edmonton accounting firm. They end up better off then if they did not incorporate and ran a proprietorship.
In addition to taxes savings. There are other benefits of operating a corporation. Including being able to get a WCB number, and be allowed on more job sites. As well as be able to get hired on with companies who refuse to hire proprietors. To minimize their task risk.
With how many benefits an entrepreneur can get from incorporating their business. Whether it is a tax benefit or not. They should talk to their Edmonton accounting firm right away.
To see if they would benefit from incorporating their business sooner rather than later. And then be able to get this done, so they will not accidentally stall the growth of their business later on.