Edmonton Accounting Firm | the Many Benefits of Incorporation
Sole proprietors should not make the assumption that there is no benefit to incorporate if they have not reached a specific size says Edmonton accounting firm.
This is a dangerous assumption. That leaves sole proprietors not completely understanding all of the benefits of incorporation.
And while there is a specific tax benefit, that can be had by entrepreneurs once they reach a specific threshold of income in their business. The recommendation is for entrepreneurs to not incorporated only after they reach this amount.
And in fact, the most successful Canadian businesses. Started their business by incorporating first. And then working very hard to get that threshold as quickly as possible.
However, for people who are operating proprietorships. They should know what that threshold is. So that if they are close to it. Or have gone over.
They can set up an appointment with their Edmonton accounting firm. To discuss timing for incorporating their business.
What that minimum threshold is, is once they have made fifty thousand dollars in net income per year. It is more beneficial financially to incorporate. Then it is to run a proprietorship.
The reason why, is because of how proprietorship income is taxed. Since proprietors file their business taxes at the same time as their personal taxes.
Edmonton accounting firm says that there income earned in their proprietorship business is taxed at the personal tax rate that there income bracket requires.
Because the highest personal tax rate in Alberta tops out at 48%. This means proprietors can be paying almost 50% of their business income in taxes.
This is extremely high, especially compared to the tax rate that corporations pay. Which is only 11% in comparison.
This means, that proprietors can save up to 37% in taxes every single year. Meaning they could use that amount to pay bills, buy assets or even increase the amount of money that they are paying themselves.
Therefore, it is a significant financial benefit for proprietors to incorporate sooner rather than later.
However, this is not the only reason why entrepreneurs should consider incorporating their business. Many sole proprietors may not even realize that they have to pay both the employee and the employer contribution for CPP.
Because they are not aware of this ahead of time. This ends up with a proprietor being hit with an additional five thousand dollars tax bill or more at the end of the year. Which can be very difficult or even impossible for some business owners to pay off.
They can get around this, by contacting their accountant and incorporating their business. And the sooner they do this. The sooner they can avoid paying additional taxes.
In addition to saving on taxes. It can also help businesses qualify for loans. That they might need to purchase equipment or machinery that can help their business grow. Or by buildings that will allow them to increase their capacity.
Most financial institutions and banks will not loan money to businesses that are not incorporated. So proprietors can eliminate that risk of not getting the loan they need. By incorporating their business sooner rather than later.
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There are several reasons why sole proprietors avoid incorporating their business says Edmonton accounting firm. It is mainly based on a variety of assumptions that it is going to cost them a lot of money.
And while there is a cost associated with it. There are also a lot of benefits. Some financial, and some not.
Proprietors should understand the benefits that they can enjoy once they incorporate. So that it makes a lot more sense to discuss the option with their Edmonton accounting firm.
For example, incorporating their business allows them to protect their tradename legally. Despite the fact that they may have gone to the corporate registries office to register the name. This is a placeholder. And does not actually legally protected.
Therefore, by incorporating their business. They legally protect their business. And prevent other people from being able to use their name that they worked so hard to create.
In addition to protecting their name, they can also protect their personal assets by incorporating. When a proprietor is operating their business. If they get sued, it is their assets and finances that are on the line.
And since no business owner has a complete zero risk to operating their business. Proprietors should consider if they are willing to take that risk. No matter how small they think it might be. That puts themselves and their family in harms way.
By incorporating. They allow the corporation to hold that liability. So that if they get sued it is the company that has to pay. And not the directors of the Corporation.
Therefore, if business owners want to protect what they have worked so hard to obtain. From their home, to their financial savings in their investments.
They should incorporate their business right away. So that they do not put things that they worked so hard at risk.
Other benefits of incorporating includes being able to get a WCB number. This will allow contractors to be able to work on a larger variety of job sites. Especially ones that there being told that they need to have a WCB number.
It will also allow business owners to be hired on by companies who refuse to work with sole proprietors. Simply because it increases their risk with Canada revenue agency.
If companies who hire proprietors have those workers deemed employees by CRA auditors, they will have to pay payroll remittances dating back. To the first day those contractors were hired. Which can be several thousand dollars. Even though they are truly independent contractors.
To completely eliminate this possibility. Many companies simply say that they will not hire proprietors. Making it necessary for businesses who want to be hired by these companies to incorporate.
Therefore, business owners will be able to accept a wider variety of jobs and bids. And increase their ability to make money. If they incorporate their business. All well protecting their name and their assets.
If business owners have no tax benefit to incorporating. Edmonton accounting firm will still make the recommendation that business owners incorporate.
However, there is also additional benefits through saving money. That can help make it an even easier decision. The sooner business owners find out about all these benefits. The sooner they will be able to incorporate and benefit their company.