Edmonton Accounting Firm | When Should I Incorporate
Businesses that are operating without incorporating are called proprietorships according to Edmonton accounting firm. However, many people who are operating proprietorships. Want to know when the best timing is for them to incorporate their business.
Ultimately, while it can boil down to being able to pay less taxes. Because the highest personal tax rate in Alberta is 48%. But the tax rate for incorporated business is only 11%. It may end up being most cost-effective for businesses to incorporate. In order to save those taxes.
However, tax rate is not the only reason why people should incorporate. And when people are talking to their Edmonton accounting firm. There are several questions that they want to know the answer to. In order to make that decision.
One of the first questions that people and of asking when considering incorporating or not. Is what is the main advantage of running a proprietorship? While they are not that many advantages. The one main advantage is maintaining a proprietorship can be less expensive than maintaining a corporation.
When taking a proprietorship year end to Edmonton accounting firm, it is going to be less expensive to do the year-end taxes. However, business owners of proprietorships should consider if saving money on their year-end taxes. Is saving enough money to justify not incorporating.
Another question that proprietors often have is they end up paying more or less payroll taxes as a proprietor or an incorporated business. The answer to this question is that if people operate proprietorships, they have to pay both the employee and the employer contribution of CPP. And they may not realize that.
This can end up with a proprietor owing several thousand dollars more in taxes at the end of the year. Then they realize that they have to pay. Therefore, by incorporating their business. They will have less taxes that they owe, because the tax rate for incorporated businesses is only 11%.
In one of the most important questions for proprietors to ask. Is at what profit level do the tax benefits of incorporating outweigh the costs? This is a general rule, however in order to get an answer tailored to their specific business they should talk to their own accountant.
But once a proprietorship has fifty thousand dollars in income. They should incorporate. The reason why, is because as proprietors, people can be paying significantly more in taxes. The highest personal tax rate in Alberta is 48%. But once proprietor incorporates, tax rate is only 11%.
So after paying all of their bills, if a proprietor has over fifty thousand dollars left over in income. They will end up saving more in taxes. Then they would pay in additional fees to incorporates, and maintain that corporation.
Ultimately, businesses who want to ensure that they are able to grow large, without paying more in taxes. Might want to incorporate sooner rather than later. Because having to wait until a financial year end to decide, can often inhibit growth.
Business owners should decide if they want to own a company that has the ability to grow as large as they want. Should incorporate sooner.
Do You Need A Edmonton Accounting Firm
Many business owners who own proprietorships often start out with this being their side job according to Edmonton accounting firm. Because they are working another job, and they do not know when the best time to incorporate is.
And while it is often a matter of how much money a business owner makes in their proprietorship. That ends at being when they incorporates. There are many other reasons why people should consider incorporating sooner. And running their business as a corporation instead of a proprietorship.
One of the first things that they will find out that there meeting with Edmonton accounting firm. Is that incorporating can protect their personal assets. The reason why, is because in a corporation gives the business owner limited liability.
If a business owner ends up getting sued while conducting their business. It is the company that get sued, and not the business owner directly. This means that a business owner is more likely to protect assets like their home or their car. If they operate unincorporated business.
This does not mean that if people incorporate, they are always hundred percent protected. But it makes it more difficult for anyone suing a company to get to the directors of the corporation. And while some businesses have more risk than others. The risk of running any business is never zero.
Another reason why business owners should consider incorporating. Is because it will protect their tradename. And while many proprietors believe that registering their tradename protects them. It will not stop anyone from incorporating that name.
But once the name is incorporated, that legally protects that tradename. Therefore, if a business owner wants to protect their name. Incorporating can do that much better than just registering their tradename can.
Another benefit that many business owners will discover when speaking to their accountant. Is that incorporating will help businesses get a WCB number in Alberta. The reason why, is because WCB tends to only issue coverage to the prime contractor.
If a business owner is not incorporated, WCB may assume that they are working under another contractor. And that company should provide WCB coverage. Therefore, proprietors may end up missing out on bids for jobs. Because they are unable to get the WCB coverage they need to be on that job site.
However, once a business owner incorporates, WCB no longer questions the primary contractor is. Assuming incorporated business is the primary contractor. Making it much easier for businesses to get WCB coverage once they have incorporated.
Also, it might be easier to end up getting jobs once incorporated. Because having a company that a business owner has incorporated. Gives them a certain amount of legitimacy to their business.
And when looking at two identical companies, but one that is incorporated and one that is not. Most contractors or businesses will tend to favour the businesses that are incorporated.
Ultimately, whether to incorporate or not should be a discussion best had with the business owner and their Edmonton accounting firm. But typically, if business owners want to be serious about growing their business. The suggestion typically is to incorporate their business as quickly as possible. So that they can build the momentum they need.