Edmonton Bookkeeper | How Entrepreneurs Can Pay Themselves Dividends
The Fraser Institute says that the average Canadian pays 43% of income in taxes, Edmonton bookkeeper says by comparison, on average only 37% of the remaining income goes towards food clothing and shelter. Many business owners are not sure how there shareholder loan accounts work, or are unaware of how important they are in end up triggering significant tax payments for themselves. This is completely avoidable by understanding how shareholder loan accounts work. Business owners can avoid getting hit with this huge tax assessment, and pay themselves properly.
Every time an entrepreneur takes money out of their business, this is called a shareholder loan. 10 bookkeeper says it is a running balance of everything that a business owner has taken out of their business since that corporation opened. This amount is kept as a running total, so it’s very important that business owners keep extremely good records of all of the money that they are taking out of their corporation. A best practice is business owners to open up a brand-new bank account where the only activity that happens in the account is a business owner drawing their salary or personal dividends. There should be only one single jaw from the account every month. Because of this says Edmonton bookkeeper, reviewing the account can become extremely easy, and will make it even easier for business owners as well as their accountants to catch any errors that are happening. Since CRA requires taxes to be paid on all money that comes out of the corporation as a salary or personal dividend, be able to keep track of all of the draws that a business owner does is extremely important.
A business owner needs to clear that shareholders loan balance so that they don’t owe their corporation longer than two years in a row. It’s imperative that the business owner clears their balance before two years is up says Edmonton bookkeeper. If they don’t clear the balance, they can be hit with a massive tax assessment at any time and without warning.
While business owner is too clear that shareholders loan account balance, is by declaring how much money they took out of their business on their personal taxes. Once they file their taxes, that brings the shareholders loan balance back to zero. It’s extremely important that business owners know how to take money out of their business, in order to avoid tax penalties. What this can also duces Edmonton bookkeeper is help business owners plan their taxes more easily. By knowing how much money they’re going to be taking out of their business each year, business owners can spread out the money that they take out, evening the amount of money that they’re taking out at any given time to avoid paying large tax penalties.
By helping business owners understand how shareholder loans work, businesses can take money out of their business smartly, and in a way that minimizes how much tax they will have to pay.
When business owners are starting their corporation, they need to learn to not take payments out of their companies as a paycheck says Edmonton bookkeeper. They should be doing money out of their account as salaries or personal dividends. All the money that they take out of their corporation, is money that they are expected to pay back to their corporation. Since business owners who are taking this money as a salary, are taking in order to live off of it, they are not going to be paying that money back to their corporation. That means, they need to clear their shareholders loan.
How business is going to clear their shareholders loan, is simply by declaring money they have taken out of their business within the last year on their personal taxes. Once they’ve declared how much they’ve taken out on their taxes, it brings the shareholders loan balance back down to zero. For this reason it’s extremely important that business owners keep an extremely good running total of all of the money that they have taken out of their business. It can get extremely confusing to keep track of all of the money coming out of their business for several years, but they need to create a system that’s easy in order for them to stay on top of all of the money they’ve taken out of their corporation.
Edmonton bookkeeper says a great method of keeping track of all of the money is for business owners to create their own bank account specifically for taking personal dividends from the company. By limiting the amount of transactions that happen in that bank account, because the only transactions that will happen in that account is when the business owner takes their dividends or personal tax, can help business owners keep very good record of all of the money that they are taking out of their business. This is not only helpful for business owners, but it’s also helpful for their accountants to be able to view all of their transactions and catch any errors that may have occurred. This is all so extremely helpful in case CRA has questions about any of the money that the business owner has taken out of their business, or if they ever need to review the historical shareholder loan balances.
Business owners will have up to two years in order to clear there shareholder loan balance by claiming the amount of money they to go to the business on their personal taxes. After two years, if a business owner has not cleared their balance then Canada revenue agency will be automatically assessed without warning and at any time. Business owners can easily avoid this devastating consequence, simply by keeping track of all of the money that they’ve taken out of their business, and completing nearly tax refunds. Simple and easy way business owners can pay themselves in their business easily and without penalty. If you think you’d like to take advantage of our services don’t wait to visit our website today!