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Edmonton Tax Accountant | How Businesses Can Use A Small Business Tax Rate
Small businesses who have not incorporated their business, are missing out on an opportunity to utilize the corporate structure in order to minimize tax in their business says Edmonton tax accountant. Since the highest personal tax rate in Alberta is currently 48%, and the small business tax rate in Alberta is 11%, businesses who want to vastly impact their business positively by minimizing the taxes that they pay, should work with their accountant in order to incorporate in order to take advantage of the 37% decrease in taxes. Only businesses who are incorporated can take advantage of this tax rate. However businesses that are going to incorporate in order to save taxes, will make their money back and what it costs to incorporate their business If they are making $50,000 per year.
Incorporating business can carry many other benefits other than lower tax rates says Edmonton tax accountant. These benefits include limiting their liability in their corporation, by allowing the corporation to take on the liability for the business, protect their trade name. Many business owners believe that their tradename is protected since they went to registries and registered that name, however businesses who incorporate the name actually owned legal right that name. Business owners can protect their name simply by incorporating. Once they incorporate, business owners will be able to be more able to qualify for loans in order to make asset purchases in their business, as well as being incorporated gives business owners more legitimacy than by not incorporating. And finally, Edmonton tax encompasses many businesses will not hire independent contractors who are not incorporated in order to limit their risk with CRA. All of these benefits can be in addition to lower tax rates if business owners choose to incorporate.
Another way that business owners can use the smaller tax rate that they will be getting is to help them accumulate their wealth. Many business owners list being able to accumulate wealth is one of the main reasons why they were interested in owning their own business. Being lower taxes, business owners will have more money in order to invest in their retirement. By taking the same amount of money each year but paying less taxes, is owners can significantly impact how much money they can save if they implement the strategy for several years in a row. For example, a business owner who takes thousand dollars to invest, and the higher tax rate, would have to spend $480 on taxes and spend the rest in their investment. However at the small business tax rate, business owners can take the same thousand dollars, and the $890 into their investments. Then is huge difference, and can be very impactful on how the business owner accumulates wealth in their business says Edmonton tax accountant.
By utilizing the same strategy, business owners can also save money in order to make asset purchases in their business, by allowing them to save up money faster, as well, businesses can pay off any debts they have faster by being able to put more money towards their debt repayment then they would if they were not incorporated.
Entrepreneurs who have not incorporated their business, end up paying far too much in tax says Edmonton tax accountant. However, business owners who are incorporated but are not utilizing corporate structure, or not minimizing as much tax as is possible. Business owners can greatly impact their business in a positive way if they incorporate, and utilize the corporate structure along with their accountant in order to minimize how much tax they are paying in their business.
The Fraser Institute says that the average Canadian pays 43% of their entire income in taxes. The taxes include GST, fuel taxes, CPP, EI as well as income tax. The rest of what is left over, Canadians pay on average 37% on their basic necessities. The highest personal tax rate in Alberta is 48%, which almost means half of what a person makes ends up being taken by the government in tax. However, the small business tax rate in Alberta is only at 11%. Thatís a huge difference, up to 37% that business owners can immediately be saving in their business. Any business can decide to utilize this in their business to save money as long as they incorporate their business and make less than $500,000 per year.
How this can help businesses accumulate wealth says Edmonton tax accountant, is by business owners paying far less in taxes, meaning they have far more money available to them in order to invest. Whether there investing for retirement, investing for education, investing for vacation, they are able to put the same amount of money towards investments, but pay for less in taxes, meaning the amount of money they can accumulate in those investment funds, is vastly higher. By doing this every year for several years in a row, can have a huge impact on how much money they can save over a long period of time. They can also utilize this in order to increase the amount of money they can save for your childrenís University, debt elimination, and saving money in order to make asset purchases in their business.
Another significant way business owners can use this corporate structure in order to minimize how much tax they pay in their business, is because they will be able to choose when they can pull money out of their business as a salary or dividends. That way, if the business owner has huge financial year, they can plan to take the money out of their business in order to minimize taxes. This is especially beneficial says Edmonton tax accountant, if the business owner is projecting a quieter year, or if they are planning on making large expenses in their business, or being gone from the business for a certain period of time. They will be able to draw the money out over a long period of time minimizing how much tax they have to pay. If businesses are not incorporated, if the business owner has an extremely profitable year, they end up taking a huge tax hit.