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Edmonton Bookkeeper | How Entrepreneurs Can Take Their Salary

Many entrepreneurs are not aware of how they can take their salary or personal dividends in their corporation says Edmonton bookkeeper. As a result, they take the money without accounting for it, or without paying personal taxes on it, which can end up costing them huge in the long run with assessments from CRA and massive tax bills. Business owners can pay themselves what ever their corporation can profit, but how they take the money out of their business is important to ensuring that they can earn income while paying minimal amounts of taxes.

The first thing that business owners should understand when it comes to taking money out of their business, is every time they take money out, it’s called a shareholder loan. And for every dollar that they take out of their business, it is kept track by the shareholder loan as a running total. Edmonton bookkeeper says that a business owner is required to pay back all of the money that they have taken out of the business market to the corporation. However, business owners who are taking the money out of their business and personal dividends or as salary in order to live. Therefore they are not planning on paying that amount back ever. Therefore, it’s very important that they understand that for the money that they are not planning on paying back to their company, they need to declare their dividends on their personal tax return. Whenever they pay their personal taxes, that effectively clears the shareholders loan balance.

It’s very important that business owners keep track of all of the money that they have taken out of their business, in order to properly declare to the government how much they’ve made, in order to pay personal taxes properly. Edmonton bookkeeper recommends that business owners set up a separate bank account that is specifically designed for dispersing their dividends. That way, business owners will be able to limit the number of transactions happening within that account, and then easily see how much they are paying themselves every month and every year. They can then use that account to declare to the government how much they have drawn from their company in order to pay taxes on. Edmonton bookkeeper says a business owner has two years in order to declare that amount. They are not allowed to owe their corporation for longer than two consecutive years, which means they must either pay the amount back or clear the balance before the end of the second year. Businesses who aren’t aware of that time period, the simply miss that deadline and then get hit with a large tax assessment.

Edmonton bookkeeper says it’s extremely important for business owners to know how to pay themselves in their corporation in order to avoid paying unnecessary tax charges, as well as how to effectively pay themselves in their business without running into trouble. By understanding these things, business owners can continue to pay themselves what they need in order to earn a living while running their business.

The Fraser Institute says that average Canadians pay over 40% of their income in taxes says Edmonton bookkeeper. And a comparison is that the average Canadian pays 37% of their remaining income on basic necessities. Business owners often go into business for themselves in order to make more money in order to give themselves a higher quality of life, however if business owners don’t understand how to structure that payment to themselves, they can run into significant problems not only with CRA but in their own corporation.

Business owners often don’t know what a shareholder loan is says Edmonton bookkeeper. What a shareholder loan refers to, is that every time a business owner takes money out of their account, they owe it back to their corporation in the form of a shareholders loan. On the flipside, every time a business owner pays something for the corporation out of their personal money, they are owed by their corporation. Both of these amounts are kept track of as running totals in the form of shareholder loans. It’s extremely important that a business owner keeps meticulous track of these amounts, not only on a year-to-year basis, but also on a ongoing historical basis. Edmonton bookkeeper recommends entrepreneurs set up a separate bank account whose only function is to disburse payments to the business owner in the form of dividends or salary. There should only be one dollar of money out of that account every month. This will limit the number of transactions in the account, making it very easy for business owners and accountants to see how much money there taking on a monthly and yearly basis, but also it will help accountants determine if there were any additional payments that need to be cleared up and help them explain it. The reason this is important says Edmonton bookkeeper is because if business owners use that money to pay for something other than dividend for themselves, they need to be able to prove that to the CRA or else they will end up paying personal taxes on that additional amount.

If a business owner owes their corporation, they must either pay that money back, or clear the balance. Since business owners are taking dividends from their company in order to pay themselves a living wage, they need that money to live on and they are not planning on paying it back. Therefore they must clear the balance. Which means they have to declare to the government how much they took out of their business in that year so they can pay personal taxes on it. All business owners must pay personal tax on the salary or dividends that they take out of their business. In fact says Edmonton bookkeeper, business owners cannot owe their company for longer than two years. Therefore, it’s important that business owners are aware of that timeline, and declare that amount that they have gotten paid in the last two years to the government in order to avoid a tax assessment.