Edmonton Accounting Firm | Why Incorporating a Business Is Beneficial
When entrepreneurs start a business, Edmonton accounting firm says they might do so as a part-time business. Because of this, they do not see the benefits of incurring the cost of incorporating their business.
Often, proprietors often see the only benefits to incorporating is something that happen once they make a certain amount of money in their business. And while incorporation makes sense financially when an entrepreneur has made a certain profit in the year.
There is a wide variety of other benefits to incorporating. That entrepreneurs should be aware of, no matter when they start their business, how much money they make per year. Or if this is their main business, or something they do part-time.
One of the most important benefits of incorporating. Is being able to protect their personal assets. Edmonton accounting firm says all businesses have an inherent risk associated with them. And even if it is an extremely low risk business, such as web design, or graphic design for example.
The risk of operating that business is not zero. And especially if it is an entrepreneurs side job. It makes it all the more reason why they should protect themselves. In case something happens, and someone sues.
If a business owner owns a proprietorship, if they get sued their own personal assets can be at risk. Including their home, their vehicles and even their investments.
This is the reason why any businesses incorporates. Because then the corporation holds that liability. Making it very difficult to personally effect of the directors of the corporation. Effectively protecting their assets and finances more completely. Then if they had not incorporated at all.
Even if the risk is very low. Proprietors should ask themselves if they want to put their family at risk. By not incorporating their business.
Another reason why business owners might want to consider incorporating their business sooner rather than later. Because it will allow them to legally protect their tradename.
Edmonton accounting firm says many entrepreneurs make the assumption. That by registering their tradename at corporate registries. Will legally protect their name.
Unfortunately, registering it is only acts as a placeholder. But it will not stop another business from taking that tradename and incorporating it. Therefore, when entrepreneurs truly want to protect their tradename. They should incorporate their business. Which gives them the legal ability to protect that name.
Another benefit of incorporating. Is that it will allow them to be hired on as an independent contractor. At companies that refuse to hire sole proprietors.
The reason why many companies have a policy to never hire independent contractors that are proprietors. Because they risk Canada revenue agency considering the proprietors to be employees of their corporation. Instead of contractors.
If Canada revenue agency does find that the independent contractor should have been considered an employee. The company will be expected to pay back all of the payroll remittances that were initially do.
This includes income tax, CPP and EI, and can equal thousands of dollars. Depending on how many employees they were considered to have. In addition to how long they worked for the company.
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Some entrepreneurs start out very slowly says Edmonton accounting firm. Doing a couple of jobs here and there, and not making enough money to quit their job. Or to worry about incorporating this side business they have.
However, it is not too long sometimes before business owners are operating quite an efficient business. However, they have not changed the structure of their business from proprietorship to a corporation.
Many business owners think that incorporating their business is something that they should do only once they are making millions of dollars a year. However, the benefit to businesses financially. Comes a lot sooner than a million dollars a year.
In fact, many business owners should consider the fact that their business income will be taxed that the personal rate as long as they are a proprietor. And this means that since the highest personal tax rate in Alberta tops out at 48%.
That they could very well be taxed at 48% as a proprietor in their business. When they rate for incorporated businesses is only a tax rate of 11%. This means that as soon as a proprietor incorporates, they could potentially save up to 37% of taxes instantly.
And while saving that amount of money can be attractive. Many proprietors think that in order to get that savings. They would have to be making hundreds of thousands of dollars a year.
However, the profit level to make incorporating a business more profitable than owning a proprietorship. Is about fifty thousand dollars a year and net income.
Therefore, if a business owner is approaching that threshold, have reached it or even have passed it. It is the best time to bring the topic up with their Edmonton accounting firm. To talk about incorporating their business.
In fact, it could cost the business quite a bit of money if they end up paying of personal tax rate on their business income for one or two years. That they did not have to pay.
However, it is not just for the tax benefits that people should incorporate. It is also beneficial to incorporate in order to qualify for business loans as well.
Most banks and financial institutions will not grant loans or financing to businesses that are not incorporated. Therefore, if a proprietor ever things that they may need alone, either to purchase assets to help them grow their business. Or something like a vehicle or a building.
They should think about incorporating sooner rather than later. So that they can qualify for that loan as soon as they needed. Instead of potentially stalling their business. Because they will need to incorporate before they can complete the loan application.
There is a wide variety of reasons why proprietors should talk to their Edmonton accounting firm about incorporating. And ultimately, while there is many financial and tax benefits to incorporating.
There are many more reasons besides financial Inc. business. So by finding the facts. Business owners can decide if it is the right decision for them.