Edmonton Accounting Firm | Save on Taxes by Incorporating
So proprietors often dig their heels in when it comes to incorporating their business says Edmonton accounting firm. Because while they understand it will cost them money. As well as add to their accounting bill.
They may not understand that there is a financial benefit of incorporating their business as well. In fact, proprietors should take into consideration. That their business taxes will get taxed at the personal tax rate. According to their tax bracket.
And since the highest personal tax rate in Alberta is currently 48%. That means so proprietors may be getting their business income taxed at almost 50%.
That seems excessive especially compared to the 11% that corporations get taxed. Therefore, so proprietors can save up to 37% on their business taxes. Simply by incorporating.
There is actually a threshold that Edmonton accounting firm uses. In order to figure out if a business can benefit financially. From incorporating or not.
This threshold is fifty thousand dollars in net income each year. And if an entrepreneur has made that in their business before paying themselves. It is in their best interest and more financially sound to incorporate their business at this point.
However, not only can business owners save a significant amount of taxes. But there is other benefits to incorporating their business as well.
Business owners can protect their personal assets by incorporating their business. Because if they get sued while conducting their business. If they are a sole proprietor. That means they will personally get sued. And that puts their personal assets and finances at risk.
However, what incorporating their business does. Is it allows the corporation to hold liability. Therefore, if an entrepreneur gets sued. It is the company that is at risk, and not the directors of the corporation.
Since there is no business that is a zero risk business. And even the lowest risk businesses might get sued from time to time. If business owners want to minimize the risk as much as possible. They can simply incorporate their business.
Another benefit to incorporation is protecting their tradename. Many sole proprietors assume that by registering their tradename at the corporate registries office. Or will legally protected that name but this is not accurate.
While this can act as a placeholder. It does not stop anyone else from taking the same name and incorporating under it. Therefore, if business owners want to protect their name. They can simply incorporate their business. And legally protect their name at the same time.
While there is many benefits to incorporating. Edmonton accounting firm recommends most businesses incorporate early on in their entrepreneurship.
This can help make it seem more real to business owners. So that they will be able to work as hard as necessary to get their business started, and be more likely to be successful.
In fact, more businesses that started out incorporating first. Our more successful. So if entrepreneurs want to increase their ability to succeed. Should incorporate first, and put all of their energy into growing their business.
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There are many financial benefits to incorporating says Edmonton accounting firm. As well as a whole variety of other benefits as well.
And when sole proprietors are questioning at what point is beneficial for them to incorporate. Most accountants will recommend they incorporate sooner rather than later for a wide variety of reasons.
And while saving taxes is one of the biggest benefits. There is more to save than just switching paying personal taxes on their business income. But so proprietors might end up owing taxes that they were not aware of before.
For example, Edmonton accounting firm says that proprietors may not realize that they have to pay both the employee and the employer contribution of CPP.
What happens in this case, is that proprietors get hit with a tax bill. Of over five thousand dollars at the end of the year that they do not expect.
This can be difficult for many so proprietors to recover from. And the only way around this situation is for so proprietors to incorporate first.
However, saving money and paying less taxes are not the only reasons why so proprietors should consider incorporating.
Can help them land more jobs. And be able to one more job sites. So that they can make even more money.
For example, so proprietors may not be able to get a WCB number. Which will inhibit their ability to work on job sites. That require them to have their own WCB number.
However, once an entrepreneur incorporates, WCB will give them their own number. So that it will not matter what jobsite they walk onto. They will have a WCB number that will allow them to work on the jobsite.
In addition to WCB numbers. Edmonton accounting firm says that it will allow entrepreneurs to get hired by a wider variety of companies as well.
Some companies actually refuse to hire so proprietors. Because of the risks of having Canada revenue agency consider those sole proprietors employees.
Because the companies themselves hold all of the risk associated with that. If Canada revenue agency considers the sole proprietors to be employees. This puts the company at risk of having to pay back all payroll remittances that they would have missed.
This can end up being a significant amount of money, several thousand dollars. And the longer the sole proprietor has worked for the company. The more money they will have to pay back.
In order to mitigate this risk. Many companies simply say they will not hire contractors if they are sole proprietors of their business. Once they incorporate, Canada revenue agency will never consider them to be employees of the business.
And this will allow them to be able to be hired by more companies. Allowing them to be able to take more jobs and make even more money than if they were sole proprietor.
With all of the benefits, tax and otherwise that come along with incorporating. Business owners should look at all of the benefits of incorporating. To make their decision on whether it is the right decision for them as well as their business.