Edmonton Bookkeeper | How Business Owners Take Dividends
There’s many things that business owners need to keep in mind when they are taking dividends of their business says Edmonton bookkeeper. The average Canadian pays 43% of their income in taxes and by comparison on average only 37% of the remaining income goes towards the basic necessities such as food and clothing and shelter. Business owners often become entrepreneurs in order to be able to increase their wealth by having a business that they can increase the profits on and choose their own wage. However, when it comes time to take that wage out of their business, entrepreneurs need to know how to do it in order to minimize taxes.
One of the first things that business owners should understand when it comes time to take pay their business says Edmonton bookkeeper, is they should take money out as a shareholder loan, and not as a paycheck. Was shareholder loan is, is a running total of all of the money that a business owner has taken out of the business. This running total dates back to the first day the business was incorporated. This running total means that business owners need to take very good records of all of the money that they take out of their business. 1 Great Way to do this is by creating a business account whose only purpose is for the business owner to draw their dividends or salary from. This way, the only bank account are shareholder draws. But this does, is helps business owner as well as their accountant very good record of all the money that a business owner takes out of the business.
One thing that business owners need to keep in mind when they take money out to using shareholder loans, is every dollar that they take of the business says Edmonton bookkeeper need to be paid back. However, owners are taking the money out of their business for a salary, so that they have money to live on and therefore are not planning on paying any of that money back. This means they need to clear their shareholders loan. How an entrepreneur clears their shareholders loan is by declaring their dividends and salary in their personal tax refund. By declaring with CRA how much money they have taken out of their business, effectively clears their shareholders loan balance. They can then start accumulating totals once more.
It’s extremely important that business owners also understand that they cannot owe their company for two consecutive years. That means says Edmonton bookkeeper that they must clear the balance before the end of the second year. If they do not clear this balance by claiming the amount that they took out of the business with Canada revenue agency this can be a significant amount of taxes depending on how much an owner pays themselves each year, and how many years they have spent not clearing their share holders loan, they may add those taxes to a business owners tax assessment at any time and without warning.
The benefits of being a business owner says Edmonton bookkeeper is being able to increase the profits in their business and then therefore take as much of the salary as their business is able to provide for them. Business owners have unlimited potential to increase their wealth, and can take as much salary as they have profits in their business. However, business owners need to be careful on how they take these dividends out of their business, in order to avoid paying large tax assessments. Business owners can use shareholder loan accounts and tax planning to ensure that the money they to go to the business is taxed as minimally as possible.
This is important for business owner to understand, in order for them to be able to significantly plan their taxes. By understanding how much money they plan on taking out in the years says Edmonton bookkeeper, they can spread out the money that they take out of their business for efficient tax planning. Business owners can talk to their bookkeeper or accountant in order to help them achieve this goal.
Another thing that business owners should understand when it comes to paying themselves a salary in their business, is that they should not be taking a paycheck says Edmonton bookkeeper. How they need to take the money out of their business is through salary or personal dividends. The best way to achieve this goal is creating a business account that is specifically for paying dividends. This way, the business owner has a limited amount of transactions that have been in that account, and they can easily see how much money they are taking out of their business to help them and their accountant keep track of all the money that is being taken out. This is also helpful, because if a business owner made a purchase for something for the business, but the CRA is claiming it is personal use, the business owner will be able to prove this to that account. The only transactions that should be coming out of that business owners shareholder loan account is there personal dividends and personal taxes and nothing else.
Business owners also need to realize that every time they take money out of their account in the shareholders loan, that is money that either need to be paid back into the business, or need to be cleared. To clear their shareholders loan before the second year that they owe their company. The reason for that is in order to claim taxes properly. Business owners who don’t clear their shareholders account after the second consecutive year, CRA can without warning assess business owners the amounts that they should have cleared. In order to avoid this tax bill, business owners need to be working with their accountant and their Edmonton bookkeeper in order to ensure that they pay their taxes on time to avoid a tax bill that could potentially devastate a business owner. We hope we can be of service to you and your business very soon!