Edmonton Accounting Firm | the Benefits of Incorporating
Many entrepreneurs might not think about incorporating according to Edmonton accounting firm. When they start their business. They do not know how large it is going to get, and so they started as a proprietorship. And then keep that same business model for the life of their business.
However, this is not a sound business strategy. And can end up putting the proprietor at risk, and costing them more money. In fact, according to zig Ziglar, he said if you bought the wrong plans, it does not matter how many positive qualities you got, a going to end up in the wrong place.
The best business strategies can be discussed with their Edmonton accounting firm. Who will help them understand what the benefits of incorporating are. And when they should incorporate to get the best benefits for their business and for themselves.
Ultimately, the reason why most proprietors do not want to incorporate. Is not just because there is the cost associated with incorporating. But because it makes their year end more complex for their Edmonton accounting firm to work on. Which makes it cost more.
But also, because once they are incorporated. They must report monthly to the government. And that additional accounting costs. Can end up adding up significantly. If the business is not turning that much of a profit.
However, there is a lot of benefit to incorporating the business. That can make the additional costs worthwhile to many entrepreneurs.
For example, many entrepreneurs may think that because they have registered their tradename at the corporate registries. That it is protected from being used by other businesses. However this is not true. And registering a trade name is really just using a placeholder to preserve the name.
Other businesses or people can come along and incorporate using that name. And they have the legal right to do so. Therefore, businesses who want to legally protect their name. Should incorporate and then they will be able to legally use that name. And legally have the right to it.
Another benefit to incorporating. Is being able to get a WCB number. Many independent contractors are required to have this number before stepping on to a job site.
However, if they are not incorporated, WCB might consider them only a subcontractor. And will not always give proprietors a WCB number. However, independent contractors cannot use the prime contractors do BC number to protect themselves. Making it impossible for them to go onto a jobsite without a WCB number.
By incorporating, business owners can get that WCB number. Because they then will recognize the business owner as a prime contractor. Allowing these entrepreneurs access to job sites they did not before. And increasing the jobs that they can accept to grow their business.
By understanding all of the benefits of why proprietor should incorporate their business. Can make them more knowledgeable, so that when they talk to their Edmonton accounting firm about the subject. They will be in the better position to make the right decision for their business.
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Some entrepreneurs start their business part time says Edmonton accounting firm. And because of this, they do not want to pay for things that could increase the expense. Before they know if the business will be a success or not.
Because of this, they operate their business as a proprietorship. And as their business grows, they never really consider revisiting the structure of their business. Even though they may end up paying far more in taxes then they should if they had simply incorporated their business.
Proprietors file their business taxes alongside their personal taxes. And because of that, their business income is taxed at the personal tax rate.
In Alberta, the highest personal tax rate is 48%. Which means proprietors can end up paying almost half their entire wage in taxes if they earn enough money.
However, the tax rate for incorporated businesses is only 11%. And so once a business owner incorporates their business, they can save up to 37% in taxes right away.
And while many business owners think that it is going to take them a long time to reach the tax brackets that has them taxed at 48%. It takes a surprisingly smaller amount of money to get this threshold than many business owners might think.
For example, the general rule of them that most accountants use. Is that once an entrepreneur is making about fifty thousand dollars a year in net income.
After paying all of their bills, they will be paying more in taxes to remain a proprietor. Then they would in additional accounting fees and incorporation fees to incorporate their business.
Since many proprietors can end up at this threshold much faster than they assume. The thought about incorporating should become well before they reach this threshold. So that they do not accidentally end up paying almost half of what they owe in taxes.
But in addition to tax reasons why business owners should incorporate. There is another reason why they should, for financial reasons.
If entrepreneurs ever want to get approved for a loan. Whether that is to purchase vehicles, equipment, machinery or other assets. Or if they are planning on buying a building. To increase their capacity to earn more money. Then they should incorporate their business sooner rather than later.
The reason why, is because banks and financial institutions typically will not loan money to proprietors. And while Edmonton accounting firm will not say it is impossible. They will go on record as saying they have never seen it happen in all of their years as an accounting firm.
Therefore, in order to ensure that business owners do not accidentally stall the growth of their business. By being unable to get the loans needed to grow their business. They can incorporate sooner, so that if they have a sudden growth spurt. They will be able to qualify for important loans.
By understanding all of the complexities around why businesses should incorporate. Can help them understand the benefits of this. Even though there is a cost associated with incorporating.