Edmonton Tax Accountant | Small Business Tax Rate Versus Personal Tax Rate
There are many reasons why businesses may want to incorporate says Edmonton tax accountant. But one of the biggest reasons that itís advantageous for business owners to incorporate their business, is to take advantage of the small business tax rates in Alberta. Currently the personal tax rate is 40%, which is the highest marginalized tax rate. The small business tax rate is sitting at 11% right now. In order to take advantage of this much lower tax rate their business, entrepreneurs need to be incorporated. Simply by incorporating their business, entrepreneurs can start taking advantage of lower taxes.
There are many things that business owners can do to benefit their business and themselves with this lower tax rate once the incorporate. The most common reason why business owners utilize this lower tax rate, is to help them accumulate wealth. Most entrepreneurs want to get into business in order to help them accumulate that wealth, so this is an effective strategy says Edmonton Tax Accountant. Since they will be taxed at a lower rate, they will be able to put more money towards investing. By utilizing the structure year after year, they can greatly affect the amount of money they will be able to save over time.
Another way that entrepreneurs can utilize this lower tax rate is by allowing them to more easily eliminate debt. Through paying less in taxes, they will be able to put more of their money into debt reduction. Allowing themselves to climb out of debt a lot sooner than they have been able to says Edmonton Tax Accountamt.
Since business owners have to be incorporated in order to take advantage of these benefits, business owners often ask the question how much money should they be making to make incorporation worthwhile. Edmonton tax accountant recommends that business owners make about $50,000 a year in order to make incorporation worthwhile. In addition to that, they can take advantage of the 11% small business tax rate up to a maximum of $500,000 per year.
In addition to being able to take advantage of lower tax rates in order to accumulate wealth, and get out of debt, this can help entrepreneurs spread out there income in order to reduce taxes. The reason for this, is because entrepreneurs will be able to choose when their money gets brought into their business. If the business owner has a big year, with a have earned a lot of income, they can utilize effective tax strategies how to minimize how much they will pay in taxes. Business proprietors arenít able to choose that, because if they have a huge year, they will simply get taxed on all of it. This is great for businesses who have had an extremely successful year, if theyíre planning to have big expenses in their business, or are taking vacations or even maternity leave. By being able to plan and to bring money into their business, and spreading it out throughout the year, they can minimize how much they pay in taxes in that year.
One of the main reasons why entrepreneurs want to incorporate their business, is in order to take advantage of the small business tax rates says Edmontons Tax Accountant. However, business owners should work with their accountant to ensure that they are utilizing the corporate structure effectively to minimize tax as much as possible.
Entrepreneurs often become incorporated in order to utilize the small business tax rates, which are currently 11% in Alberta. The personal tax rate Alberta currently is the highest marginalized tax rate at 48%. That means, business owners who are not incorporated, or not utilizing the corporate structure effectively could be paying up to 37% more in taxes than they could be. Edmonton tax accountant says business owners need to be incorporated in order to take advantage of this tax rate, and a good rule of thumb is for them to making minimum of $50,000 before they consider incorporating.
Great benefit of incorporate in their business, in order to take advantage of the corporate structure, is because business owners will be able to choose when money gets brought in to their business. If business owners have had a hugely successful year, they may want to plan how theyíre bringing money into their business in order to avoid paying a huge mountain tax. Businesses who are not incorporated have no choice says Edmonton Tax Accountant. If they have a year where they have made significant profits, they have no choice but to take a huge tax hit. This corporate structure can help businesses plan how they are going to make big expenses, how they will take vacations, and even maternity leave. This is especially helpful, since self-employed entrepreneurs get no employment insurance.
Some other benefits of incorporation include protecting their tradename, being able to qualify for loans, it also gives the business a look of legitimacy, and some businesses will not hire independent contractors who are not incorporated says Edmontons tax accountant. And if a business owner has no other reasons than saving tax as why they should be incorporated, they should look at incorporating once they started making around $50,000 in a year. Once they pay that amount, they will be able to break even on their taxes versus the cost of incorporating.
There are many benefits to incorporating a business says Edmonton tax accountant, but the most common reason for most entrepreneurs, is being able to accumulate wealth faster. They can utilize the small business tax rates, in order to be able to spend more of their money on investing. By utilizing this method year after year, entrepreneurs can make a huge impact on how much will they will be able to accumulate over time. This is an effective strategy that business owners can use in order to put away enough money for them to retire on, or use the money in the future how ever it suits them best.