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Edmonton Bookkeeper | How Do Business Owners Pay Themselves
One of the benefits of being a business owner, is that business owners are able to pay themselves any salary they want, as long as they were able to afford that payment says Edmonton bookkeeper. Unfortunately, if business owners are not sure of how to effectively pay themselves, they stand at risk for paying higher taxes, or even getting assessed a tax bill without warning. There are several things that business owners can learn in order to ensure that they are paying themselves properly in order to avoid problems in the future.
One of the first things that business owners should understand says Edmonton bookkeeper, is that every single dollar that they take out of their business, they actually owe the company back. They are not able to go there company for more than two consecutive years without paying that money back, or clearing that balance. Clearing the balance involves declaring how much money they’ve taken out of their business on their personal taxes. The reason for this, is because business owners must pay taxes on the dividends that they take out of their business. If they do not clear their balance after two years, CRA is able to add that to their assessment without warning. This is owners who aren’t aware of how shareholder loans work, may not clear their balance in the appropriate amount of time, which can result in receiving a huge tax bill that can not only be devastating to the business owner, but potentially cause their business to run out of money and have to close.
Since all of the money that a business owner owes their corporation is actually a running total since the day their corporation opened, a business owner needs to be able to keep extremely good track and meticulous records of every single shareholder loan. Edmonton bookkeeper says 1 Great Way of doing that, is by creating a separate bank account that is specifically for the business owner to draw they are dividends or their salary from. The best way to use that account, is for the business owner to have one single draw every single month, in order to limit the number of transactions that are happening in that account. That way, if the business owner or their accountant sees any additional transactions, that can be a trigger for them to investigate the reason for it. The reason why it’s so important to keep a meticulous track, is because a business may need to go back historically and see what amounts have been taken out since the beginning of their business in order to satisfy CRA. and also says Edmonton bookkeeper it’s important for a business owner to keep meticulous track, because if they took money out of their business but it was not for personal use, a business owner and their accountant also must explain and prove that to CRA in order for the business owner to not pay taxes on that additional amount.
Many business owners believe that simply by being an entrepreneur they can take out any money from their business at any time without penalty says Edmonton bookkeeper. Unfortunately that’s not true, and business owners who don’t adequately understand how to take money out of their bank using shareholders loans, can not only be pay higher tax bills, they can also hit with huge tax assessments. Understanding shareholder loans can be a complex process, but there are few easy things for business owners to understand when it comes to your shareholder loans that can help them figure out how to pay themselves properly to avoid problems.
The first thing that business owners should understand when it comes to paying themselves in their business, is that they should take dividends out of their company instead of giving themselves a paycheck. Every dollar that they take out of their business they actually owe back to the corporation. They also should understand says Edmonton bookkeeper that every time they pay for something for the corporation personally, or pay a corporate expenses out of their own account, the corporation owes them the money back as well. Both totals are kept as a running total dating back to the start of the business. If a business owner had taken out $2000 from their business as a dividend, but then paid $5000 in corporate expenses, that means the corporation owes them $3000.
By understanding that every dollar that they take of the company is money that they need to pay back, business owners can understand why they can’t just take money out of their business. However, business owners who are taking money out of their business in order to live, aren’t actually planning on paying that money back, which means they need to declare that salary or their personal dividends on their personal tax refunds. Every business owner who collects dividends from their business, must pay personal tax on that money. By not claiming that money on their personal taxes, is frowned upon by the CRA. A business owner is not allowed to go there company for longer than two years says Edmonton bookkeeper. They must clear their balance by declaring that salary on their personal taxes by the end of the second year or else risk being assessed that tax amount by the CRA any time and without warning. If business owners don’t understand how to pay themselves, and declare taxes to the government, they could see themselves in hit with a massive tax bill says Edmonton bookkeeper. Not only would this be devastating to a business owner, but it could potentially cause a business to close their doors.
By helping business owners understand how to pay themselves properly, and declare to the government in order to allow them to pay the proper taxes, entrepreneurs can collect their salary, and be assured that they will be able to take the money they need out of the business in order to live, and avoid any penalties. If you want your business to live so that you can live freely. Call us at, 780-665-4949.