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E-Myth – “Why most small businesses don’t work & what to do about it”

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Edmonton Bookkeeper | Shareholder Loans And Dividends

One of the most misunderstood things in how business owners pay themselves is by shareholder loans says Edmonton bookkeeper. Business owners who fail to properly understand shareholder loans, can unfortunately get hit with tax assessment by CRA for significant amounts of money. Also by not understanding shareholder loans properly, business owners can also pay higher taxes. Every dollar that a business owner takes of their business is actually owed back to their business in the form of a shareholder loan.

Every time a business owner wants to take money out of their business, that comes out as a shareholder loan. Every dollar that they take out, is go back to their company. But since the business owner takes out the money in order to live off fit like a salary, they are not planning on paying that amount back. Therefore, they need to declare their salary or personal dividends to CRA. The reason it’s important to declare that amount, is because they will need to pay personal tax on that amount that they take else’s Edmonton bookkeeper. By not declaring how much they’ve taken out of their company, business owners run the risk of CRA finding out and assessing them with a huge tax bill. Business owners have up to two years to clear their balance before risk getting an assessment.

By understanding how this shareholder loan works, this can help business owners plan efficiently how to take that money out. By working with their accountant and spreading out the money that they will be taking throughout the year, they can plan taxes around that, and even out the amount of taxes that they’re going to pay so that it’s even. This can only be done if business owners understand shareholder loans and work with their accountant.

In order to help them understand how much money they’ve taken out of their bank account each year says Edmonton bookkeeper, the recommendation is for business owners to create a shareholders loan bank account and limit the number of transactions that are coming out of that account. There should be only one or two transactions out of their account in a single month, one single draw for salary, and one single draw for personal tax. Not only will this help business owners see how much money they have taken out of their company in order to declare it to the CRA leader, it can also help their accountant see how much money has come out and for what purpose says Edmonton bookkeeper.

It’s extremely important that business owners and their accountants should monitor their shareholders account, so that they can account for the money more easily. It shouldn’t be very difficult to monitor it for business owners and their accountants. Edmonton bookkeeper says it’s extremely important that business owners keep track of this amount so that they can efficiently declare to CRA when they’ve taken money out, and plan paying their taxes accordingly. By understanding shareholder loans, business owners can take money out of their business, and avoid paying significantly more in taxes.

The average Canadian pays 43% of their income in taxes says Edmonton bookkeeper that includes CPP, EI, GST fuel tax just to name a few. Only 37% of Canadians remaining income goes towards basic necessities like food clothing and shelter. Business owners who don’t understand how to take money out of their corporation effectively can end up paying higher taxes than they would otherwise. It’s extremely important that business owners learn will shareholder loan is, and what they have to do in order to take the money out of their business that they need in order to live, but minimizing taxes and tax assessments.

Business owners need to first understand what happens when they take money out of their company or get a personal benefit says Edmonton bookkeeper. What this actually does is adds to their shareholder loan account. Every dollar that they take it out of their company, is money that the business owner owes their company back and is kept as a running total since the very beginning of the business. For this reason, it’s very important that business owners keep great record of all of the money that they have taken out of their account. Edmonton bookkeeper recommends that business owners create a separate bank account that is only for taking salary or personal dividends out of their company. This way, it will be easy to track historically all the money that a business owner has taken out of their company.

Business owners also need to understand what happens if they contribute personal funds to the corporation, or pay corporate expenses themselves. Edmonton bookkeeper says that this is money that the corporation owes them and is also expressed as a running total to the beginning of the business. If they are ever owed more money than they owe the corporation back, the business owner can take that money.

It’s important that if a business owner owes their corporation more money than they are owed back from the corporation, the need to clear that amount. Edmonton bookkeeper says how a business owner is to clear that amount is by declaring how much money they have taken out of their business as salary or personal dividends to CRA. The reason for this says Edmonton bookkeeper is because everyone is expected to pay personal taxes on their salary or dividends that are taken out of a corporation. No one is exempt from paying that tax. If business owners are not sure how to do this, Edmonton bookkeeper can help.

It’s extremely important for business owners to understand that if they do not clear this amount with CRA by the end of the second year that they owed their corporation, CRA will be able to add that amount to their assessment at any time and without warning says Edmonton bookkeeper. To avoid getting hit with us tax assessment, business owners should be very diligent to ensure that they are clearing their balance on a regular basis.