Edmonton Bookkeeper | How Business Owners Can Take Salary
The average Canadian pays 43% of their income in taxes says Edmonton bookkeeper, for example PP, EI, GST fuel tax just to name a few. Many business owners decided to become entrepreneurs in order to minimize the taxes that they were paying, as well as enabling them to increase their wealth. Since business owners have unlimited potential to increase their wealth, many business owners want to increase their businesses profits, in order to be able to pay themselves whatever salary they are able to. However, business owners need to know how to pay themselves a salary or dividend in order to avoid triggering significant tax payments.
Business owners should understand what the shareholders loan is, and how it affects them in their business and how they can get paid. Shareholder loans are a running total of all of the money that a business owner has taken out of their corporation. Edmonton bookkeeper says every time a business owner takes any money out of their business, this is accounted for in the shareholders loan. The business owner is expected to pay back that loan. However, business owners take that money out of their business in order to pay themselves a salary to live off of, and aren’t planning on paying it back. Therefore, they need to clear their shareholders loan, which means they are claiming the amount that they took over the business on their personal taxes. Once they clear that amount, there shall world the loan can continue accumulating the amount of money they owe the corporation.
Business owners should also understand that there is a time limit on how long they can owe their corporation before is expected to either be paid back with cleared. Business owners are not able to over their corporations longer than two consecutive years. Edmonton bookkeeper says that means business owners need to either pay back the amount or clear the balance before the end of the second year. Failure to do so will mean potentially triggering an assessment by CRA all the amount that the business owner owes the corporation for as long as they have owed it, since the last time that amount was cleared. If business owners are unaware of this, or haven’t cleared their shareholder loan in several years, they are looking at paying significant amounts of personal taxes. Being expected to pay back taxes on everything that they have taken out of the business, for years it has been. That amount can be significant and devastating.
By understanding how the shareholders loan works, and what their expectations are paying taxes, business owners can use this information and together with their accountant in Edmonton bookkeeper, significantly plan how they’re going to take money out of the business in the next year in order to spread out the amount of money that is being taken, and effectively tax plan for it in order to avoid larger tax bills. This is how business owners can use shareholder loans to increase their wealth.
One of the benefits of being a business owner says Edmonton bookkeeper, is that they get to choose how much money they’re going to pay themselves, as long as their business is profiting. The more money they make, the more their business profits, the more they can pay themselves. An entrepreneur will be able to create unlimited wealth for themselves this way. However, business owners can’t just take any money they want out of the business without accounting for properly. By learning how to account for the money they think of the business probably, business owners can pay themselves the salary that they want, and minimize the effect of those taxes on their income.
Whenever a business owner takes money out of their business, this is called a shareholder loan. They must keep track of all of the money that they have taken out of their bank, and this is a running total since the start of their corporation says Edmonton bookkeeper. The easiest way to keep track of this money is by creating a bank account, and the primary purpose of the bank account is for the entrepreneur to draw their dividends were salary from. By using that account to only draw those things out, they can limit the number of transactions in the bank account which can help them not only avoid errors, but easily be able to see how much money the business owner has taken out in the business, as well as be able to review historical shareholder loan balances. This is extremely important, because since the shareholder loan is running totals dating back to the beginning of the corporation, if for any reason the business owner need to review the historical shareholder loan amounts, if it is not done in a very clear way, it can be extremely difficult or impossible to completely figure out how much money a business owner took out of their business.
An entrepreneur also needs to understand that every dollar that they take out of their business, they actually owe that money back to their corporation. And they either have to pay back that dollar amount, or they have to declare to the Canada Revenue Agency how much they took out of their business as salary or dividends. Since the business owner is not going to pay back the loan the to give their business, because that’s what they’re taking out as salary, it’s extremely important says Edmonton bookkeeper that a business owner keeps track of all the money in order to edit to their personal tax refund. Failure to do so within two consecutive years, can have the business owner seeing CRA assess them without warning for all of the taxes that they owe. Not only can this be financially devastating to a business owner, you can also and a business. Entrepreneurs can avoid this situation from happening by ensuring that if they over the corporation more than two years, they need to claim that amount of money on their personal taxes to avoid being hit with assessment says Edmonton bookkeeper.