Edmonton Bookkeeper | Business Owners Taking Salary In Their Business
There are many things that business owners should take into consideration when they start paying themselves a salary from their corporation says Edmonton bookkeeper. Business owners need to avoid simply giving themselves a paycheck. They should learn how to use shareholders loans in order to draw personal dividends and salary out of their business appropriately. It’s not difficult to learn, but by doing this the proper way, business owners can avoid paying unnecessary personal tax, as well as avoid assessed significant CRA payments by not claiming their income properly with the Canada revenue agency.
Every time a business owner takes money out of their corporation, this adds to the shareholder loan account. The more money they take out of their corporation, the more money they owe back to their company as a running amount. Business owners should understand that all of the money that they take out of their corporation either needs to be paid back, or they need to clear their shareholders loan balance. A way that a business owner clears their shareholders loan balance, is simply by declaring the amount of money that they’ve taken out of their corporation on their personal taxes. All entrepreneurs who take salary or dividends from their business, pays personal taxes in this way. It’s also important that business owners understand how long they have in their business to clear their shareholder loan balance. Edmonton bookkeeper says business owners should not owe their corporation for longer than two years at a time and it is their responsibility to clear their shareholders loan balance before that two years is up.
When business owners failed to clear their shareholders loan balance, this can create huge problems for them, because CRA is able to then assess the business owner with the tax payments that the business owner has missed for as long as they have missed them. This can be very devastating for a business owner to all the sudden have to pay all the taxes that they owe CRA. The business owner has waited several years in order to clear their shareholders loan balance, this can be a significant amount of money says Edmonton bookkeeper. And as tragic as this is, it is also extremely avoidable.
Business owners should keep extremely good records of not only all of the money that they have taken out of their corporation, but all of the money that they have paid into their business as well. The reason for that, is because business owners need to be able to keep good track of all of the payments they have taken in order to declared on their taxes, but also to keep the record straight with their accountant and CRA. By creating a bank account’s specifically for salary and dividend draws, this owners and their accounting team can easily see in that account the only activity are the shareholder draws that the business owner takes from that account. And there should be very few of them. There should be one or two draws every month which would be the business owners personal dividends and an amount for personal taxes. If there’s anything else that happens to come out of that account, it should be very obvious to business owners and their accountant.
When business owners are unsure of how to take money out of their business, the end up making very costly mistakes as Edmonton bookkeeper. The Fraser Institute says that the average Canadian pays 43% of their income in various taxes. And comparison of that, says that average Canadians spend only 37% of their remaining income on basic necessities. Business owners need to take money out of their business in a very specific way as to not pay unnecessary personal taxes, but also to avoid triggering significant tax payments based on what is in their shareholder loan account.
Every time a business owner takes money out of their business, that adds to their shareholder loan account. Every time a business owner takes money whether it is salary or personal dividends, it adds to the amount of money that they owe their corporation says Edmonton bookkeeper. Business owners either need to pay back that money to their corporation, or declare that money that they’ve taken is salary on their personal taxes. Since the business owner has no intention of paying back the money that they’ve taken from the corporation ignored to live on it, therefore there are other option is to declare their salary on taxes.
Business owners should also be aware of how long they have in order to declare that amount that they’ve taken out of their business on their personal taxes says Edmonton bookkeeper. Many business owners don’t realize that there is a time limit, and keep accumulating the amount of money that they owe their unfortunately there is a limit says Edmonton bookkeeper. They must not owe their corporation for two consecutive years. This means a business owner will have to clear the balance in their shareholders loan account before the end of two years. If they do not clear their balance, Canada revenue agency may automatically assess their personal tax at any time and without warning. If a business owner wants to avoid getting hit to the sudden and unexpected tax payment, they should ensure that they are clearing their shareholders loan account every year.
By understanding of how to make money out of their business, as well as how to appropriately clean their shareholder’s loan account, business owners can use this information to help them plan how they take money out of their account, in order to minimize personal tax cost. They can figure out ahead of time how much money they will be taking from their business, and draw money from the corporation strategically to minimize taxes that they pay. This can be extremely beneficial to business owners says Edmonton bookkeeper, and can help them increase the wealth in their business. we would just absolutely love to have you as one of our valued customers.