Edmonton Accounting Firm | Understanding Why Incorporation Is Beneficial
The reason why many sole proprietors do not want to incorporate their business says Edmonton accounting firm. Is because they do not understand all of the benefits associated with it.
In fact, many business owners know that there is an expense to incorporating. As well as increased accounting costs. And in order to keep their business costs down. They decide they do not want to incorporate. Even before finding out all of the facts.
And while yes, there is a fee associated with incorporating their business. As well as increased accounting fees. Because of the more complex and more time-consuming financial year end that their accountant will need to do.
And also, because they will have increased reporting requirements. Which will require their accountant to submit reports every month on their behalf to Canada revenue agency.
However, these added costs do not come without benefit. And business owners can often have more of a financial benefit to their business. Then it costs them to incorporate.
Business owners who are operating sole proprietorships. Should consider the tax rate that they have to pay as a sole proprietor.
Since they complete their business tax return at the same time as their personal tax return. They might see that their business is being taxed at the personal tax rate.
Depending on what tax bracket they end up in, they could be paying up to 48% in personal taxes on their business income.
This is very significant, because the tax rate for businesses that have incorporated is 11%. Which can be up to with 37% savings, depending on what tax bracket a sole proprietor is in.
And while many sole proprietors think that they are going to have to earn very significant sum of money each year in their business. To save that kind of money. This actually is not the case.
Edmonton accounting firm typically uses the threshold of fifty thousand dollars a year in net income. That a sole proprietor needs to be earning before paying themselves. In order to make incorporating their business a financially sound decision.
Once an entrepreneur has reached fifty thousand dollars in net income each year in their business. It is more financially beneficial to incorporate their business. Than it is to continue to operate as a proprietor.
And while this is not always the case. By making an appointment with their Edmonton accounting firm. Can help a sole proprietor see how much money they are making per year, and what the costs are of incorporating. To see what is the most financially sound decision.
In addition to saving taxes. Business owners may also discover that they will not be able to qualify for loans as a sole proprietor. Because banks typically will not loan money to businesses that are not incorporated.
Therefore, in order to get the approval that they need to buy the assets or buildings that they need to grow their business. Sole proprietors should think ahead. And incorporate before they need to apply for a loan.
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Even though there is a cost associated with incorporating a business says Edmonton accounting firm. Plus increased accounting fees. This does not mean that proprietors should avoid incorporating their business.
They should look at all of the benefits of incorporating. And even if it costs them more money to incorporate in the long run. It might be well worth that cost. To enjoy the benefits that it brings them.
In fact, business owners may not realize that they are personally liable if somebody sues their business and they are operating as a proprietor.
This means that if they have a home that their family is living in. Or if they have other assets, including financial savings and investments. All of those things can be at risk. If they ever get sued.
And while some proprietors think that they have an extremely low risk business. Such as web design. Or the fact that they do not run their business full-time. Means that they have a lower risk somehow.
However, the matter how low the risk is. Are sole proprietors willing to gamble the home that their family lives in. In order to avoid paying incorporation fees.
By incorporating their business, Edmonton accounting firm says that they shift their liability from themselves onto the corporation. Sheltering themselves from the effects a lawsuit might bring them.
And while it does not mean the directors of the company are completely risk-free. It makes it is incredibly more difficult for business owners to be affected by things like a lawsuit.
However, protecting themselves against a lawsuit is not the only reason why entrepreneurs should incorporate their business. If sole proprietors want to protect their tradename. The only way to legally do so is to incorporate.
While many proprietors assume that if they have gone to the corporate registries office in order to register their tradename. That the name is legally protected this is not the case. It cannot stop another person or business from taking the same name and incorporating it
Therefore, in order to protect the name that they have spent years building. Business owners should incorporate first. Before another company takes that name from them.
And still, there are even more benefits to incorporating a business. Such as being able to be allowed on more job sites says Edmonton accounting firm.
The reason why, is because sole proprietors might find it difficult or even impossible to get a WCB number. And while they will not be able to get one, they often need one to take jobs on certain sites.
By incorporating their business, they will be allowed on any jobsite they wish to work on. Increasing their ability to take more projects and increase amount of money they can earn in their business.
Even some companies will refuse to hire sole proprietors. Because of the risk of having Canada revenue agency assume sole proprietors are employees of the business. Which will require companies having to pay payroll remittances that they have missed paying.
Because of that, many companies is simply refuse to hire sole proprietors. And so by incorporating their business. Proprietors can accept a wider variety of contracts. Without being held back by being a proprietor.