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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

Entrepreneurs are often not sure how their shareholder loan account works says Edmonton bookkeeper. As a result, the end up triggering huge tax payments because of what is in their shareholder loan. Helping business owners demystify shareholder loans will help them job money out of their company to live, while avoiding getting text more than they should. There are several things that a business owner should know when it comes to shareholder loans in order to help them understand what they need to do.

What happens when you draw money out of the company or get a personal benefit? Edmonton bookkeeper says when an entrepreneur draws money out of the company this adds to the shareholder loan account. Business owners should draw money out using dividends instead of getting a paycheck.

What if you contribute personal funds or paid corporate expenses personally? Reasonable business owner takes money out of the company, it ends up being a running balance on their shareholder loans. Every time they take money out, it’s a running total against everything that they have put in to the company says.

How are shareholder loans owing to the Corporation normally cleared? Edmonton bookkeeper says that this is usually done in salary dividends. Business owners need money to live on, so they’re not going to pay this amount back. They will end up declaring salary for personal dividends.

Why is it difficult to review historical shareholder loan balances? The reason for this is because shareholders loans are a running total throughout the entire life of the business since the business was incorporated. Without proper records being kept, it can be hard to go back and see what has been done since the beginning of business. Business owners need to be careful to stay on top of it in order to be able to easily understand what’s going on with it.

Does monitoring your shareholder loan prevent unnecessary personal tax? Business owners need to know that yes this is absolutely the case. They need to monitor their shareholder loan in order to account for more easily. This is the most significant thing to monitor, and best practices say they should take one amount out, and then live off of it.

Does limiting the transactions in your shareholder loan account prevent errors? It says this is absolutely necessary, business owners should limit the number of transactions in their shareholder account in order to avoid errors. They should have one single draw every month, or perhaps a second one for their personal tax, and then nothing else. If they keep it simple like this, they were their accountant will be able to see easily what’s going on.

For these reasons, says Edmonton Bookkeeper business owners need to be careful and be aware when they are dealing with shareholders loans in order to keep it simple as well as avoid getting taxed more significantly on the income that they draw out of their shareholder loan account.

Business owners who don’t know how their shareholder loan account works, or don’t think it’s very important to monitor says Edmonton bookkeeper’s end up paying significantly higher tax payments because of what is included in their shareholder loan. Business owners should always be aware of how their shareholder loans work in order to pay minimal taxes, and take out the money they need in order to live. This takes some due diligence, and a bit of planning. Business owners just need to know all the how to achieve this.

One thing that business owners should understand when it comes to shareholder loans says Edmonton bookkeeper is that they can be automatically assessed for their personal tax if they don’t clear the shareholder loan. It’s very important for business owners to know this, because Canada revenue agency can add it to their assessment at any time without warning. It’s extremely important that business owners clear the shareholder loan as soon as possible.

Business owners often don’t clear their shareholder loan because they don’t understand how long they have two clear balances going to the Corporation. Edmonton bookkeeper says that business owners have up to two years. They are unable to over the company for more than two consecutive years without clearing the balance. Many business owners feel that their business is unable to clear those shareholder loans, and therefore carry the balance which is a significant risk. Entrepreneurs should understand that this two-year window that’s necessary to clear a shareholder loan will provide them with great planning opportunities. If an entrepreneur knows how much they need to pay themselves back, they will be able to spread out taking the money in order to pay back effectively and do tax planning on it in order to avoid paying high taxes on the amount they do draw.

Another suggestion is for business owners to limit the number of transactions in their shareholder account in order to avoid errors, and make it easier for them and their accountant to review what’s coming out of their shareholders bank account. A business owner should have one single draw out of that account every month, which is what they will use to live on. They may have another draw once a month for their personal taxes, there shouldn’t be anything else coming out of the accounts. This keeps it simple for both them and their accountant to see how much money they are drawing out of their business. This also makes it very easy for entrepreneurs and their accountants to monitor their shareholder loan in order to prevent unnecessary personal taxes. By creating a shareholders loan account, and only drawing money of that account can help business owners account for it more easily. This also makes it much easier for business owners to monitor, and easier for them to just take one draw out to live off of.

By understanding how shareholders loans work, and by monitoring it, business owners can take the money out of their business that we need in order to live, without getting in trouble with CRA are being assessed for higher taxes.