Edmonton Tax Accountant | Incorporating To Help Decrease Debt
Entrepreneurs who have not incorporated their business are paying too much tax says Edmonton tax accountant. Often businesses who are incorporated, are still not utilizing the corporate structure enough in order to minimize taxes as much as possible. Fraser Institute says that the average Canadian is paying 43% of their total income in income tax, CPP, EI, GST, fuel tax to name a few of the taxes that they pay. And that they are spending only 37% of the income that is left over on their basic necessities such as food and shelter. Business owners can drastically improve the fortune of their business as well as themselves by incorporating their business says Edmontons tax accountant, but they should work with their accounting team in order to maximize the benefits of incorporating to pay as little tax as possible.
One of the ways that incorporating can help businesses, is by helping them eliminate personal debt quicker says Edmontons tax accountant. The reason for this is because once a business owner is paying a much lower tax rates, for example 11% instead of 48%, a business owner can pay much more money towards debt servicing than before. If the business owner has personal debt, or if they incurred debt by getting their professional designation, or even if they have taken on debt in their business in order to purchase their business or by assets in their business says Edmonton tax accountant, they can utilize this strategy in order to eliminate their debt quicker.
By the same token, business owners who incorporate, can also help themselves accumulate wealth much faster, by increasing the amount of money they have available to invest in their portfolio says Edmonton tax accountant. This same method will allow the business owner also to save money in order to purchase assets in their business. This is extremely important, because as business owners operates there business, they become less and less likely to qualify for loans due to the cash crunch potential of most businesses. By planning ahead, business owners can eliminate debt, invest more money in their future, and save money to purchase assets in their business to help them continue to grow their business.
Another way that incorporating can help business owners, is by helping them spread out and reduce their taxes from higher income years says Edmontons tax accountant. This is where a business owner needs to work with their accounting team in order to plan their tax strategies efficiently. But unincorporated business owner can spread out the amount of money that they take of their business throughout the year in order to avoid paying large amounts of taxes. If a business owner had a very profitable year in one year, they can eliminate having to pay high taxes on that. This is extremely beneficial if the business owner is planning on making any big expenses over the next year, or taking any time off in the business including extended vacations or maternity or paternity leave. Since entrepreneurs donít get employment insurance, they need to be able to take full advantage of the marginalized rates.
One of the most important things that business owners should keep in mind when they open up their own businesses Edmonton tax accountant is that by incorporating, they can minimize the taxes that they pay in the several different ways. The highest personal tax rate in Alberta is currently 48%, and is the highest marginalized tax rate. However, by comparison the small business tax rate in Alberta is at 11%. Business owners can save almost up to 37% in taxes immediately simply by incorporating. Itís important to note, that business owners need to know that they must be incorporated to get that small business tax rate, their income must be made from an active business, and not passive income such as rental income, dividends or stocks and bonds. A business owner also should be making a minimum of $50,000 a year in order to get the maximum financial benefits, however there are many other benefits to incorporation, that businesses shouldnít wait only until they hit $50,000 a year in order to incorporate. But there is a limit to how much a business owner can make says Edmonton tax accountant before they can no longer qualify for the small business tax rates. Entrepreneurs must make no more than $500,000 in a single year in order to continue taking advantage of this small business tax rate.
One of the best ways that businesses can utilize the small business tax rate in their business is to help decrease their debt. Edmontons tax accountant says whether that debt is personal debt, debt incurred obtaining their professional designation, or if it was debt incurred by purchasing their business, or purchasing assets within their business, business owners should understand that their debt can be eliminated much quicker if they incorporate their business. The reason for that says Edmontons tax accountant, is that if they are able to incorporate their business and to pay 11% in taxes instead of 48%, they will be able to put far more money into debt repayment then they were before. This can mean significant differences when they are paying their debt back. Edmontons tax accountant says that if a business owner is paying thousand dollars a month, the personal tax rate of 48% would mean that they were only paying $520 a month after taxes. However at the small business tax rates, business owners can pay $890 and debt servicing due to the lower tax rate. This is a difference of $370 more each month but a business owner is going to be able to put into debt servicing. Edmonton tax accountant says this difference means they will be able to eliminate their debt much quicker, which will allow them to go on to do different things in their business such as accelerate their wealth accumulation, or save money to make asset purchases.