Edmonton Tax Accountant | Buying Assets Using Small Business Tax Rate
There are many benefits to incorporating a business says Edmonton tax accountant. However, business owners who are incorporated, but are not utilizing the corporate structure to minimize taxes, end up paying far more taxes than they need. One of the benefits of being a business owner is being able to increase wealth, both in generating unlimited sales for business, but also being able to accumulate wealth a lot easier by paying lower taxes. There are several ways that paying lower taxes can impact a small business owner, all that will help a business owner not only in their business, but in their personal life as well. The highest personal tax rate in Alberta is 48% according to the Fraser Institute, and the small business tax rate is currently at only 11%. Business owners should ensure that they are doing everything they can in order to get that 11% tax rate.
Business owners can actually utilize the small business tax rate in order to help them save money in order to purchase assets in their business. By saving how much tax they are paying, and allow the business owner to put more money into savings to buy assets in their business says Edmonton tax accountant. For example, business owners who are trying to save about $1000 each month in order to buy the assets they need in order to operate their business, they would have to pay for hundred and $80 in taxes, meaning they would only be able to save $520 a month toward asset purchases. However, if business owners are paying only 11% in taxes, that same thousand dollars that they are saving, get taxed $110, meaning they can save $890 a month instead of $520. This will allow them to be able to buy assets a lot sooner in their business then they would have otherwise.
In addition to being able to save money in order to buy assets, utilizing this same strategy, Edmonton tax accountant says business owners can eliminate their debt quicker, whether it is personal that, or debt business owners incurred from purchasing their business, or financing assets. Also entrepreneurs can utilize the strategy to help themselves accumulate wealth through investing. By putting more money away per month into their portfolio for investments, is can vastly impact how much money a business owner can have in their portfolio several years into the future.
Another great benefit to utilizing the corporate structure in order to minimize taxes says Edmontons tax accountant, is by being able to plan with the accountant when to bring money into the business in order to spread out that money and reduce taxes. This is especially important when a business owner has had an extremely profitable year, they will want to utilize efficient tax planning in order to minimize the amount of taxes they are going to pay on that money. Business owners who are not incorporated, have no choice but to take a big tax it on their profitable year.
Business owners who are not incorporated says Edmonton tax accountant are paying too much in tax. The personal tax rate in Alberta is currently the highest marginalized tax rate and is sitting at 48%, which is 9% higher than it used to be which was 39%. Even business owners who are incorporated, may not be utilizing the corporate structure will enough in order to eliminate how much tax they are paying. Business owners who want to take advantage of the small business tax rates as well as the corporate structure in order to be able to minimize how much taxes they can pay, need to incorporate their business as quickly as possible.
Only businesses who are incorporated can take advantage of the small business tax rates in Alberta. And the income that they make, must be from an active business says Edmontons tax accountant. That means income made through passive means such as dividends, stocks or bonds, and rental income for example are not able to save taxes at the 11% rate. Also, a business owner must be making no more than $500,000 per year in active business in order to get this rate. Once they make more than that, there are no longer considered a small business.
By incorporating, this can help entrepreneurs by assets in their business. Edmonton tax accountant says that business owners who take advantage of the 11% tax rate can immediately start saving much more money in order to save for asset purchases in their business. How they can do that, is if the business owner was interested in saving $1000 a month for asset purchases, they would have to pay meaning they would only be able to save $520 per month toward asset purchases. However, business owners that are taking advantage of the 11% tax rate, would only have to pay $110 in taxes, meaning they could put $890 towards saving for asset purchases. Itís easy to see how much faster business owners could increase their savings, and be able to purchase assets in their business much sooner than they could at a higher tax rate.
Business owners can utilize this method in order to put money away into their RRSPs or stocks and bonds in order to accumulate wealth, and they can also utilize this method says Edmontons tax accountant by eliminating their debt much quicker. This can significantly impact the business as well as the business owner in their personal life.
There is also significant secondary benefits of incorporating a businesses Edmonton tax accountant. Business owners who incorporate their business are able to decrease their personal liability. Once incorporating, a business owner puts the liability of the business into the corporation. The decrease their personal liability which means they are at a lower risk for being sued in their business. This doesnít mean they have no risk of being sued, but it decreases it significantly.