Edmonton Tax Accountant | Benefiting From Small Business Tax Rate
An extremely sobering statistic from the Fraser Institute says that the average Canadian pays 43% of income in taxes says Edmonton tax accountant. This include a variety of taxes such as income tax, CPP, EI, GST, fuel tax etc. They spend the rest of their income on basic necessities such as shelter and food. Many business owners often want to become business owners in order to minimize how much tax they have to pay in their business. However many business owners do not incorporate, or they are not adequately using the corporate structure in order to minimize taxes in their business.
It can be extremely beneficial for businesses to utilize the small business tax rates in order to impact not only their own life, but there business. One of the most popular ways that business owners utilize the small business tax rate is by helping themselves accumulate wealth. Edmonton tax accountant says help business owners would do this, would be through paying less taxes, they have more money available to them for investments. For example, if a business owner had $1000 to invest, the personal tax rate of 40% would mean that they would have to pay $480 to taxes before investing the rest. By properly utilizing the corporate structure, business owners would have $890 to invest, which would have a great impact on how much wealth they could accumulate over several years. By utilizing this method, Edmontons tax accountant says business owners can reduce their debt quicker as well as have the money available to invest in assets in their business.
There are many other benefits of incorporating says Edmontons tax accountant. One of those benefits, is that incorporated businesses donít have to pay CPP in addition to tax. Since businesses who are not incorporated have to pay that on top of their tax, thatís roughly an additional 10% on $50,000 per year. That equals $5000 that an employer has to pay additionally on top of tax for CPP. Keeping in mind that business owners have to pay not only the employee portion, but their employer contribution as well.
Another great way that entrepreneurs can use the small business tax rate in order to impact their business, is by helping entrepreneurs spread out and reduce tax from higher income years. If the business has a very profitable business year, they will be able to spread out how they take money out of their corporation in the coming years in order to minimize the taxes they have to pay on that profit. Edmonton Tax Accountant says this is extremely beneficial especially if businesses are planning to have large expenses, or vacations in their upcoming years.
Business owners who are only concerned with saving tax should look at incorporating their business when they are making around $50,000 in their business. If they make more money than that, they end up spending more money to not be incorporated then they would spend on incorporating their business says Edmontons tax accountant
Entrepreneurs and people who are thinking about becoming entrepreneurs should know that the highest personal tax rate in Alberta is currently 48% says Edmonton tax accountant. This is a huge amount of taxes that people are paying in Alberta. Many people become entrepreneurs in order to be able to save how much money they are spending and tax. The Alberta small business tax rates are currently at 11%. Business owners can stand to save up to 37% in taxes simply by taking advantage of this reduced tax rates.
The first thing that entrepreneurs should keep in mind when theyíre considering this, is that there businesses must be incorporated to get this rate. There is also a limit to how much money they can make before theyíre no longer eligible for this 11% tax rate. Businesses who make more than $500,000 in year can no longer qualify says Edmonton Tax Accountant. However, business owners need to know how they can utilize the corporate structure to minimize taxes as much as possible. Just by incorporating, doesnít mean business owners are automatically going to get the lower tax rate. They should talk to their accountant in order to plan how theyíre going to be able to take advantage of the lower tax rate.
Once business owners have utilized that small business tax rate, this can help them in a variety of ways in their business as well in their own lives. One of reasons why business owners want to save so much on taxes, is so that they can invest more money for their future. By utilizing lower taxes, business owners can afford to put more money into investments than they were previously able to. By significantly increasing their contributions year after year, the amount of money that a business owner will be able to save can be significantly accelerated. Since one of the main reasons that many business owners wanted to become entrepreneurs was in order to be able to significantly increase their wealth.
Other ways that business owners can utilize the corporate structure to minimize tax is through spread out and reduce their tax from higher income years. Edmonton tax accountant says business owners can work with their accountant to figure out how theyíre going to spread out their income from very profitable years, to minimize the taxes they have to pay on that money. This is extremely beneficial to businesses who may have a very profitable year followed by a less profitable year or if theyíre planning on having large expenses, or vacations throughout the year. Business owners can take full advantage of marginalized rates and be able to avoid high taxes on their more profitable years.
By utilizing the corporate structure, business owners can minimize as much tax as they can in their business, but incorporating their business also has many other benefits such as decreasing their personal liability in their business, protecting their tradename, being able to qualify for financing, and being able to get hired at companies who wonít hire unincorporated businesses.