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Edmonton Tax Accountant | Incorporating To Help By Assets
Entrepreneurs who were not incorporated are paying up to 48% of a personal tax rate says Edmonton tax accountant. Fraser Institute reports that the typical Canadian pays 43% of their income in a variety of taxes, and that only 37% of their income left over goes towards paying their basic necessities such as shelter and food. Simply by incorporating their business, business owners can stop paying 48% of personal taxes, and start paying 11% which is currently the small business tax rate in Alberta. Itís important to note that business owners must be incorporated in order to get that rate, and must make their income from an active business, meaning passive income such as rental income or stocks and bonds are not qualified. Business owners also needs to know that they can only make up to $500,000 in the year to be taxed at that rate.
Significant things that business owners should know when they incorporate, is that they can help them accumulate wealth much quicker once they are incorporated says Edmonton tax accountant. The way this works, is that a business owner who is paying lower taxes, has more money available to them in order to have invest. By investing more money every year than they previously had, he can vastly accelerate how much wealth they can accumulate. Since the personal tax rate is 48% and the small business tax rate is at 11%, business owners should be able to put 37% more money into investments than they previously were. If they do this consistently and over several years, by can have a huge impact.
Edmonton tax accountant says business owners can utilize this strategy in order to eliminate debt whether itís personal or business debt, and save money in their business in order to make asset purchases. Itís extremely important that business owners utilize the increased money that they have in their business in order to save money, eliminate debt and increase their wealth accumulation while they can. Itís especially important that business owners save money for asset purchases, because as their business ages, banks are less likely to finance asset purchases due to the cash crunch potential that most businesses face.
In addition to helping business owners accumulate wealth, the lower tax rates as well as being incorporated can help a business owner spread out the amount of money that they bring into their business from higher income years in order to minimize tax that they pay. Businesses who are proprietorships, meaning they are not incorporated, have no options but to take a big tax hit if they have an extremely profitable year. On the other hand, businesses who are incorporated can strategize with their accounting team in order to figure out the best way to take money out of their business to minimize taxes. This is especially beneficial if the business owner has of less profitable year following year, if they are planning on having big expenses says Edmonton accountant such as making large asset purchases, or if they are planning on having extended vacations for medical leave such as maternity or paternity leave, or if there having surgery.
One of the benefits of being an entrepreneur, is being able to utilize the small business tax rate says Edmonton tax accountant. However, business owners need to understand that in order to take advantage of the small business tax rates, they need to be incorporated. The highest personal tax rate in Alberta is currently 48%, meanwhile the small business tax rate in Alberta is at 11%. Business owners can save immediately 37% in taxes. This can help them in a number of significant ways, as long as they work with their accounting team to strategize how to do so.
One of the best ways that business owners can utilize the lower tax rate that they can get once they incorporate, is by helping them accumulate wealth. Many business owners go into business for themselves in order to affect how much money they are able to make as a salary, as well as how much money they can put into investing in their future. By utilizing the small business tax rate, which is a savings of 37% over the highest personal tax rate, business owners will be able to put 37% more money into investments than they were when they were not incorporated. This means if they are investing thousand dollars, they can put 370 more dollars into that savings because that 37% is not getting taxed anymore says Edmonton tax accountant.
Business owners can also utilize this strategy in order to eliminate debt and save money in their business for asset purchases says Edmontons tax accountant. In addition to saving money, by being incorporated, business owners can eliminate having to pay CPP on top of their tax. Businesses were not incorporated must also pay the employer portion of the CPP in their business, which works out to be about 10% for every $50,000 that a business owner makes. This additional $5000 minimum per year can be automatically eliminated when a business owner incorporates their business.
Another way that business owners can benefit their business by incorporating says Edmontons tax accountant, is being able to choose when they are money gets brought into their business. If a business has had a huge profitable year, the business owner should be able to plan their taxes with their accountant to figure out how much money can be brought in over a certain period of time to minimize how much taxes a business pays on that. Business who is not incorporated, has no choice, but to take a large tax hit. This ability to plan out how to take money out of the business over a long period of time can help business owners and their accountants plan large expenses, or extended absences such as vacations, that leave or medical leave, since self-employed people do not qualify for EI says Edmonton tax accountant.