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

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Edmonton CPA | Should New Businesses Incorporate

Many entrepreneurs believe that incorporating their business should be one of the first steps that they take says Edmonton CPA. And while incorporating might be the right decision for entrepreneurs, it should not be the very first thing that they do. One of the first reasons for that is because in order for chartered professional accountants to be able to manage entrepreneurs’ finances in the most tax-efficient manner, the tax plan needs to be written directly into the articles of incorporation when a business owner creates that corporation. Therefore, before they even incorporate, they should talk to a chartered professional accountant to decide if that is even the right move, and if so how to structure their corporation.

While many entrepreneurs believe that they have to incorporate as a business owner, that is not true. Edmonton CPA says that businesses that are not incorporated are called proprietorships. It is legal to own and operate without incorporating and in order for business owners to understand which one they should do, they should get advice from a chartered professional accountant to know the differences between the two, and the benefits of each.

The first things that entrepreneurs should know about owning a proprietorship, is that when they own this type of business, all of their business profits will get reported on their personal tax return. This might not be very impactful if a business owner is not making a significant amount of money, however, entrepreneurs need to understand that the highest personal tax rate in Alberta is currently 48%, and that the average Canadian spends 43% on taxes. By running their profit through their personal taxes, might mean pushing that entrepreneur up into an extremely high tax bracket. On the other hand, corporations pay 11% in a small business tax. In order to save up to 37% in taxes, many entrepreneurs want to incorporate for tax purposes alone.

When thinking about incorporating, entrepreneurs should also know that there is a cost not only to incorporate but in reporting to the government the profit and taxes that they made every single month. Entrepreneurs should budget and incorporation fee, as well as a monthly reporting fee. In addition to that, the year-end financials for a corporation are typically more expensive as well. Therefore, business owners should know the costs associated with both. If a business owner is incorporating just for tax savings, they should know that the breakeven point is that fifty thousand dollars a year. Anything more than that, and business owners typically end up paying far more in taxes with the proprietorships.

Another reason why entrepreneurs might choose to incorporate, is because it will allow them to limit their personal liability. If an entrepreneur has many personal assets including their family home, by limiting their personal liability, it lessens their ability to get sued because their corporation shoulders much of that risk, which puts a smaller risk on getting sued and losing those personal assets

One of the very first things that entrepreneurs often do when starting their business is to go to corporate registries and become incorporated says Edmonton CPA. While entrepreneurs believe that they are saving money, instead of hiring an accountant or lawyer additional fees to incorporate, it actually could end up costing them far more in taxes. The reason for that is because the directions and how to efficiently handle the taxes of the corporation need to be written directly into the articles of incorporation. If the business owner incorporates without having those tax instructions, they could be ensuring that there creating a company that has and inefficient tax plan built into it.

In order for entrepreneurs to ensure that they are having the best tax plan possible, they need to talk to and Edmonton CPA. That chartered professional accountants will be able to ask the entrepreneur questions about their business, about all of the shareholders that will be involved, all of their personal circumstances in order to create the most efficient tax plan possible for the business. Once they have all of that information, they will create the most efficient tax plan they can, and that will have instructions in how to structure the corporation. Whether the accountant themselves handles the incorporation, or they give the instructions to a business ownerís lawyer in order to incorporate for them, business owners should understand that having that tax plan figured out ahead of time is an extremely important step.

Since many entrepreneurs want to become business owners in order to minimize the amount of taxes that they pay, ensuring that they are setting their business up in order to minimize taxes from the very beginning is extremely important. Business owners should understand that the highest personal tax rate in Alberta is currently sitting at 48%, and the small business tax is at 11%. They stand to save a significant amount in taxes, they can then put towards accumulating wealth personally, so it is extremely important from an extremely prudent standpoint for entrepreneurs to set their business up correctly and Edmonton and CPA.

Business owners should understand that when they are hiring in Edmonton CPA in their business, that it should not cost them anything for the initial consultation. Some chartered professional accountants do charge an hourly fee for the consultation, but since the initial meeting is helping the entrepreneur as well as the accountant decide if this is going to be a beneficial working relationship, that consultation is usually free. Therefore, entrepreneurs need to understand what they are looking for when speaking to their accountants, so that they can hire one that will be able to help them structure their tax properly, handle their incorporation as well as help that entrepreneur maximize their chances of success.

It is an extremely important step for entrepreneurs to take to help set their business up to pay the least amount of taxes. So entrepreneurs should keep that in mind and talk to the right Edmonton CPA in order to find the one that will allow them to maximize tax savings so that they can save significant amounts of money as early on in their business as possible.