Edmonton Bookkeeper | Shareholder Loans And Corporations
When entrepreneurs are not sure how shareholder loans works, or don’t believe that it is important to keep track of says Edmonton bookkeeper, the end up triggering huge tax assessments because of what is in their shareholder loan. By helping business owners understand how their shareholders loans work, and why it’s important to keep track, business owners can take money out of their business easily and through effective tax planning, avoid paying huge amounts of tax.
Edmonton bookkeeper says that business owners should understand that every time they take money out of their business, they actually owe that money back to their corporation in the form of a shareholder loan. Business owners need to keep track of every single time they take money out of their account, because that shareholder loan needs to be paid back to their corporation and it is account for in a running total dating back to the day their business was incorporated. They need to be able to look back historically and see how much money they have taken out ever.
Even though business owners are expected to pay their shareholders loan back, the reason why business owners take money out of their business is so that they have money to live says Edmonton bookkeeper. Because of this, they need to declare that the money they took out of their business was salary or personal dividends. This is called clearing their shareholder loan. It’s very important that business owners clear their shareholder loan because all business owners who take money out of their business are expected to pay taxes on that. Entrepreneurs cannot owe their company for two consecutive years. They have until the end of the year to clear that balance. if they do not clear their balance in that time, CRA can automatically assess them any time and without warning. business owners who want to avoid getting hit with a huge tax bill unexpectedly, should ensure that they are keeping track of how much money they are taking out of their business and declaring that on a regular basis.
One easy way that business owners can keep track of all of the money that they are taking of their business, is by creating a bank account that is dedicated only to taking money out of their business. This will limit the number of transactions that are coming out of that account, so both the business owner and their accountant can see all the money that is being taken else’s Edmonton bookkeeper. If something else comes out of the account, the accountant will be able to easily figure that out. It’s important to keep track not only in order for the business owner to pay back their shareholder loan to the corporation, or declare to CRA how much they have taken out, but it’s also important for the accountant to be able to figure out if certain amounts that came out of the business were for personal dividends or salary. If amounts came out of the business that were not personal dividends or salary, the accountant needs to be able to account for that so that the business owner will not get assessed taxes on those amounts.
Canadian citizens pay 43% in income tax, and various other taxes that says Edmonton bookkeeper. Business owners often start businesses in order to minimize the amount of taxes that they have to pay. By understanding shareholder loans in their companies, business owners can learn how to pay themselves by taking money out of the corporation, and paying minimal amounts of tax. There are just a few things that business owners need to keep in mind when they are paying themselves.
One of the first things that business owners should know is that every time they take money out of their business, that is kept track of as a running total dating back to the beginning of the corporation. Every time that the money is taken out, that is money that the business owner actually goes back to the corporation. However says Edmonton bookkeeper, business owners are taking money out of their corporation in order to live off of it, so they are not intending to ever pay that amount of money back. Therefore, it’s important that business owners declare the amount of money that they have taken out of their account to CRA. The reason for that is because every business owner pays personal tax on their salary or dividends that they take out of their corporation.
In fact, a business owner is not allowed to owe their company for more than two consecutive years. They must clear the balance and declare how much they’ve taken out of the company with CRA in that timeframe. If they don’t says Edmonton bookkeeper, CRA will be able to assess the business at any time and without warning. In order to avoid getting hit with a huge tax assessment, business owners should always be keeping meticulous track of how much money they’ve taken out of their account, in order to declare how much they’ve taken out.
Business owners should keep great track of all of the money that they are taking out of their account, and Edmonton bookkeeper says the easiest way to do that, is to create a specific bank account specifically for that purpose. This will keep all of the transactions in one bank account that is not only easy for the business owner and the accountant to monitor, it will also be very easy to look back on if the business owner ever needs to review historical shareholder loan balances. Business owners should stick to one draw coming out of the bank account every month, one draw that they will live off of for that month. They may have a second draw in order to pay for their personal taxes. This way, everyone can see the amount of money that is coming out of the account, and make it very easy to track. Be sure to give us a call at, 780-665-4949