Edmonton Accounting Firm | Should Sole Proprietors Incorporate
Whether a sole proprietor thinks that they are too small to incorporate says Edmonton accounting firm. Or if they think that they are not making enough money. Too often, so proprietors avoid incorporating their business. When it can be a benefit to do so.
The reason why many so proprietors think that they are not making enough money, or that they are too small. Is because there is an assumption that paying for incorporating is a large cost.
And while there is a cost associated with incorporating their business. As well as the accounting fees associated with their monthly reporting. And more complex financial year-end.
There are also many benefits that not only offset the financial cost to it. But can be worthwhile financially as well.
One of the most significant benefits of incorporating a business is because it protects the business owner in case they get sued.
Since no business is ever hundred percent protected from getting sued. This makes entrepreneurs that own proprietorships liable, as well as their assets and finances.
If proprietors have a home that their family lives in, or investments that bring in additional income. Those things become at risk if they get sued while conducting their business. Even businesses that are extremely low risk, still have some risk associated with them.
Business owners should consider if they are comfortable with even a small amount of risk. That means that their family might be without a home they get sued.
Instead, by incorporating their business. The corporation holds that liability. Making it much more difficult for anyone to personally impact the directors of the corporation.
If any business owners would like to protect themselves and their assets. Incorporating their business is the fastest way to do that.
Another reason why business owners might want to consider incorporating their business sooner. Is because it can legally protect their tradename.
While many entrepreneurs assume that registering their tradename at corporate registries offers the same protection. Edmonton accounting firm says this is not true. It only acts as a placeholder. Which will allow other businesses to take their tradename and incorporate with it first.
Therefore, when business owners incorporate quickly. They are protecting the name that they are working to build.
Another way that business owners can benefit from incorporating their business sooner rather than later. Is by being able to work on a wider variety of job sites.
Some companies will refuse to hire sole proprietors. Simply because there is a risk that Canada revenue agency may consider them to be employees of the company says Edmonton accounting firm.
If this happens, the companies will be required to pay back all of the payroll remittances that were missed. Including income tax, CPP and EI. Dating all the way back to when that contractor was first hired.
Therefore, to protect themselves. Some companies simply say they will only hire contractors that are incorporated. By incorporating themselves, business owners can take on a wider variety of bids, that will allow them to grow their business quicker.
How long is the wait to go to your Edmonton Accounting Firm?
While there are many great reasons for so proprietors to incorporate their business according to Edmonton accounting firm. Many proprietors still resist. Because of the perceived costs associated with incorporation.
However, it can be a financial benefit for many sole proprietors to incorporate. The sooner they realize this, the sooner they are going to be able to enjoy a lower tax rate. Which they can use to fund their business, or pay themselves a higher salary.
Since sole proprietors file their business taxes along with their personal taxes. They will get taxed a personal tax rate for their business income.
This becomes very significant. When people realize that the highest personal tax rate in Alberta is 48%. Meanwhile, the corporate tax rate is only 11%.
Sole proprietors can save up to 37% in taxes simply by incorporating their business. And even if they save less than 37% in taxes. This still can mean more money in the pocket of their business. To help them do things like pay payroll, pay bills, and pay themselves.
However, Edmonton accounting firm says many business owners think that in order to save enough taxes to make incorporation worthwhile. They have to be making at least a hundred thousand dollars a year in their business.
However, this is not the case. The threshold is a lot lower than that. And if business owners have made fifty thousand dollars in net income before paying themselves. Financially beneficial to them. To incorporate their business, then it is to continue to operate as a sole proprietor.
In addition to that, business owners may be surprised to find out that as proprietors. They have to pay both the employee and employer portion of CPP.
If business owners are not aware of this. They may end up getting a tax bill larger than five thousand dollars at the end of the year that they did not expect. And that can be a significant hit that they might not recover from.
Therefore, they should think about incorporating sooner rather than later. So they do not end up getting taxed a wide variety of things that they were not prepared for.
In addition to benefiting financially. Incorporating can also help business owners qualify for loans that they would not as a sole proprietor.
Since financial institutions typically will not loan money to sole proprietors. And since business owners are often applying for loans in order to purchase the lings or assets that will help them grow their business.
By having to stop to incorporate before applying for these loans. Can stall the growth of their business. And lengthen the process to get that loan. And can negatively impact their business.
There so many financial reasons why sole proprietors should talk to their Edmonton accounting firm about when they should incorporate.
And understand that incorporating their business is more than just something that they should do when they get to a certain size. It can help them save taxes, protect themselves, and help them grow their business as well.