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Understanding how shareholder loan accounts work is an important first step for business owners. They need to understand that every time they take money out of their corporation, that adds to the shareholder loan account. It’s very important that they keep extremely good chunk of all of the money that they take out of their business for personal use. The reason for this, is all of the money that they take out of their business for personal use, they actually owe back to their business. The shareholder loan account keeps track of all of the money that they have taken out. However, entrepreneurs who are taking out salary and dividends are using that money to live off of, and aren’t actually planning on paying that money back says Edmonton bookkeeping. Since they’re not planning on paying back, they need to clear that shareholder loan account in order to set that account amount back to zero. The way they would do this, is by claiming on their personal taxes how much money they have taken out of their business for personal use.
Every business owner who takes money out of their business for personal use must declare it on their personal tax refund and pay the appropriate personal taxes. It’s extremely important for business owners to know also that there is a limit to how long they can go there corporation that money. Edmonton bookkeeping says entrepreneurs cannot owe their company for two consecutive years. That means, entrepreneurs need to clear the balance of their shareholder loan before and of the second year. If they do not clear their shareholders loan account, CRA may assess those business owners at any time and without warning. Much many a business owner has taken out of their business, and how long it’s been since they last cleared the balance, this amount can be huge. Business owners aren’t aware of how their shareholder loan account works, or don’t think it’s important can end up in a lot of trouble.
Because it’s so important for business owners to keep track of all of the money that they have taken out of their corporation for personal use in order to declare it later, it’s very important that they learn how to keep a good record. Lasting a business owner needs is for CRA to try to business owner to pay personal taxes on money that a business owner took out of there corporation, but used it for their business instead of personal.
Business owners need to know several things when it comes to paying themselves properly says Edmonton bookkeeping. Entrepreneurs who do not pay themselves properly, or don’t keep track of all of the money that they have taken out of the corporation, can end up triggering massive tax payments, or paying far more in taxes than they should have. Since many business owners became entrepreneurs in order to increase their wealth and control how much in taxes they were going to pay, this is extremely important for business owners to know so they can avoid paying higher taxes.
Business owners should understand what happens when they get personal benefit from their company, or when they draw money out of, says Edmonton bookkeeping. All the money that they take out for personal use, adds to the amount in their shareholder loan account. All of the money that they take out is kept track of as a running total. Also, every time a business owner contributes their personal funds to pay corporate expenses, that also affects their shareholder loan account. The money that they have paid into their business is removed from the money that they owe. If they owe anything after that, that is money that they owe back to their corporation. Although entrepreneurs are taking money out personally in order to pay themselves salary so they can live, so business owners are not planning on paying that money back to their corporation. The way they can clear that balance, so they don’t owe that money back is by declaring on their personal taxes how much money they have taken out of there corporation for personal use. That way, they end up paying personal taxes on and they the longer owe the corporation their money back, and the shareholder loan account gets returned to zero.
It’s extremely important that they know that there is actually a limit to how long they have to clear their balance with their corporations as Edmonton bookkeeping. Business owners are not allowed to go there corporation for two consecutive years. That means, that they need to clear their balance before the end of the second year or else they may trigger tax payments. If Canada revenue agency doesn’t get that cleared balance from a business owner, they can add it to the business owner’s personal tax assessment without warning to avoid this situation, all business owners need to do is clear the balance of their shareholders loan before the end of the second year at the latest.
Because of this, it’s extremely important that extremely good records are be kept of how much money a business owner is drawing out of there corporation. Edmonton bookkeeping recommends setting up a separate bank account for a business owner to take all of their salaries and personal dividends from. By limiting the number of transactions that have been in that account, can make it very easy for business owner to look in that account at the end of the year and see how much money they’ve done out of the company as a whole.
