Edmonton Bookkeeper | How Corporations Can Pay Out Salary
The benefits of being a business owner’s is Edmonton bookkeeper is being able to choose their own salary, and to pay themselves what ever their business can bear. However, business owners need to be aware of how they must pay themselves salary personal dividends in order to avoid penalties for paying higher taxes. There’s several things that business owners should keep in mind, but once they learn how to do these things, they will be able to pay themselves in their business, without worry of having to pay higher taxes.
The first thing business owners should understand says Edmonton bookkeeper is what a shareholder loan is in their business. Shareholder loan is money they take out of their business through salary or personal dividends, that’s money that they owe the corporation. If the business owner pays personal money to the corporation, that’s money that the corporation owes them. Both amounts are held in balance, going back to the first day that the business started. If a business owner owes more in the corporation than the corporation owes them, they either need to pay that money back to their business, or they need to clear their shareholder loan balance. What it means to clear the shareholders loan balance, is the business owner need to claim on their personal taxes what they took out of their business as salary or personal dividends. It’s extremely important says Edmonton bookkeeper that business owners don’t owe their corporation 42 consecutive years. That means, if they owe there corporation for two years, they must clear the balance on their personal taxes before the end of the second year. If for some reason the business owner does not cleared their balance before the end of the second year, that may trigger CRA to assess the business all the amounts that the business owner took out of their corporation and haven’t yet pay taxes on. Depending how long it’s been since the business owner paid their taxes, or were not aware of this rule, they can be a huge tax bill that a business owner will be expected to pay. This may be financially devastating to both the business owner and their business.
For these reasons, business owners should be very careful about how they decide to keep track of all of their shareholder loans. Edmonton bookkeeper says a really good method is to create a bank account where the only function of the bank account is to hold the money that the business owner is going to draw their salary from. This will limit the amount of transactions that can seize, to one or two draws in every month. These two draws should be a business owners salary or personal dividends as well as their personal tax and then nothing else. This limited amount of transactions can help business owners easily see how much they’re taking in shareholder payments to their business every single month, and can also help with their accountant with you the amounts to see if there’s any error that need to be fixed. This can also help accountant proof it was to get out of the bank if CRA believes that a business owner took money out of the account for personal use when it was actually for business use this is Edmonton bookkeeper. Business owners can avoid paying taxes on something they took out of their bank account for business use.
It’s extremely important that business owners learn as early on in their business as possible help to pay themselves in their business says Edmonton bookkeeper. Business owners to learn how to pay themselves properly, they can at the very least pay much higher taxes than they otherwise would, and at the very worst could be assessed for thousands of dollars in back taxes. It’s extremely important that business owners learn how to use shareholder loans to pay themselves personal dividends were salary in order to save taxes and avoid assessments.
Many business owners do not know what to shareholder loan is says Edmonton bookkeeper. And what a shareholder loan is, is the amount of money that a business owner takes the business. It is a running total that dates back to the beginning of the corporation. For every dollar that a business owner takes of the corporation, they actually are required to pay that back. Unfortunately, business owners are not planning on paying that amount back, because that’s the money that they are using to live off of. Since they are not planning on paying that money back, they need to clear their shareholder loan balance. How a business owner that says Edmonton bookkeeper, is by declaring their dividends and salary on their personal taxes. This clears the balance, and allows the business owner to pay personal tax on their earnings, as every business owner must do. Once there shareholders loan balance is cleared, the amount that they over the corporation starts accumulating once more.
It’s extremely important that a business owner keeps very good records of all of the money that they take out of their business says Edmonton bookkeeper. there are several reasons for that, the most important one being a business owner must be able to see how much money they have taken out of their business throughout the entire year in order to claim their personal taxes. Another reason they must keep good track of this, is so that they can review all of the money that’s coming out of the bank in order to see if there are errors, or if CRA has a question about any of the money that a business owner has taken out of their business. CRA may request proof that money that was taken out of the business was spent on the business. If the business owner is not able to prove that, they made have to pay taxes on amount that business owner can’t prove they spent in their business. By keeping meticulous records says Edmonton bookkeeper, business owners can avoid errors, avoid paying taxes unnecessarily, and know how much they need to claim on their personal taxes.
It’s also extremely important for business owners to know how often they must clear there shareholders loan account balance. Edmonton bookkeeper says business owners cannot over their company for more than two consecutive years. That means before the end of the second year, a business owner must clear their balance. By not declaring their balance, business owners run the risk of triggering a huge tax payment. If they do not declare how much money they’ve taken out of their corporation, Canada revenue agency can and will without warning and at any time assess that business owner for back taxes.