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Edmonton Tax Accountant | Incorporating To Help Accumulate Wealth
The highest personal tax rate in Alberta is 48% says Edmonton tax accountant, while the Fraser Institute says that the average Canadian pays 43% of their income in taxes, and 37% of that remaining money goes towards their basic necessities. That shows us that many Canadians and Albertans are most likely paying towards the highest marginalized tax rate that exists, which is a 9% increase from the last rate. By comparison, the small business tax rate in Alberta is currently at 11%, which is 37% less tax. Entrepreneurs can take advantage of that small business tax rates very easily. They just need to understand there are a few things they need to ensure in their business before they can qualify. First says Edmontons tax accountant, a business owner must be incorporated in order to get this rate. Incorporating a business is very easy, often takes less than a day, and business owners who are making around $50,000 per year should know that if they make any more than that, they will be paying more in order to not be incorporated. Business owners also have to make their income from an active business, which means passive income like from rental properties, or stocks and bonds are not included to qualify for this small business tax rate. Business owners also need to understand, that if they make more than $500,000 in a year, they no longer qualify for this rate.
One of the most important ways that incorporating their business can help business owners says Edmontons tax accountant, is to help them accumulate wealth. Many entrepreneurs say that one of the reasons they wanted to go into business for themselves, is to help them accumulate wealth. They recognize that as employees, they are not in charge of how much money they would be able to make per month, but is business owners they can make an unlimited amount of money by increasing their revenue says Edmonton tax accountant. Because of that, entrepreneurs know that if they increase the amount of money they make per month, they can also increase how much money they invest into RRSPs and their portfolio to accumulate wealth. Edmontons tax accountant says that business owners who become incorporated, can start putting 37% more money into their investments then they would otherwise. This means, if the business owner had been putting in an thousand dollars, after taxes, they will be able to put in $370 more than they had previously been. Since the 11% tax rate means a business owner can put $890 into their investments from thousand dollars, this can make a huge difference to how much money a business owner will be able to accumulate especially compounded over several years.
Not only can this help business owners accumulate wealth, but incorporating their business carries a number of secondary benefits that include decreasing their personal liability, protecting their tradename, be able to qualify more readily for financing, giving their business a certain amount of legitimacy and being able to get hired on to jobsites who say that they will not hire unincorporated contractors.
One of the benefits of being entrepreneurs says Edmonton tax accountant is being able to qualify for a small business tax rates. Paying less in taxes can significantly help business owners in a number of ways. The average Canadian pays 43% of their income in taxes according to the Fraser Institute account, and the highest personal tax rate in Alberta is currently 48%. After paying taxes, Canadians pay an average of 37% of their remaining income on basic necessities. By becoming an entrepreneur and incorporating their business, business owners can start taking advantage of the small business tax rate, which is currently 11% in Alberta. Edmontons tax accountant says this is a savings of 37% and can make huge impact on businesses everywhere.
The most impactful way that this lower tax rates can impact a business, is by helping a business owner accumulate wealth personally. The way this works says Edmonton tax accountant, is by allowing the business owner to put more money towards investments because they are paying less in taxes. For example, a business owner who is investing in thousand dollars, you have to pay for hundred and $80 in taxes before incorporating. However after incorporating says Edmontons tax accountant, business owners can take the same thousand dollars, and pay 37% less taxes, meaning that they could pay $890 towards their investments instead of $520. Thatís a huge amount of money that a business owner could invest, and if this strategy is used every month over several years, can significantly impact how much money a business owner could have, and how quickly it could accelerate the growth of that money.
Not only is it very helpful for business owners who are looking to increase the wealth in their business, but incorporating can also help business owners effectively plan taxes with their accounting team in order to minimize the amount of taxes they pay in their business, and help spread out and reduce tax from higher income years says Edmonton tax accountant. Businesses who are not incorporated are not able to do this, if they have a very profitable year, theyíre going to pay a lot of taxes. However, businesses that are incorporated can choose how to take money out of their business in order to avoid large tax hits. This is really beneficial if the business owner is planning on going on vacation, or taking a medical leave, or if they have big expenses. Businesses can work with their accounting team in order to help them decide the best strategy to minimize taxes.
Edmonton tax accountant says thereís also several other benefits that businesses can get from incorporating, and protecting their tradename and being able to qualify for financing as well as giving their business a certain amount of legitimacy are some of those benefits.