Edmonton Tax Accountant | Using Small Business Tax Rate To Accumulate Wealth
Business owners may not even be aware that they are missing out on saving significant taxes by not being incorporated says Edmonton tax accountant. Currently, the personal tax rate in Alberta is 48%, and is the highest marginalized tax rate. However, by incorporating their business, entrepreneurs can eliminate paying 48% in personal taxes, and start paying the small business tax rate which is currently 11%. Itís important for entrepreneurs to know that they must be incorporated in order to get this rate, and that they have to get the money from an active business, and not passive income. Passive income includes dividends, stocks and bonds as well as rental income. Not only does a business owner must be incorporated, get their income from an active business, they also have to be making no more than $500,000 per year in order to get that rate businesses can incorporate at any time, but entrepreneurs should be aware that if they make more than $50,000 per year, itís more costly for them to not to be incorporated than it is to incorporate.
Edmonton tax accountant says one of the best ways that business owners can utilize the small business tax rate is to help them accumulate wealth. How this works, is that a business owner who is putting thousand dollars a month into their personal investments, will get that thousand dollars taxed at 48%, meaning $480 will be taken for taxes. On the other hand, once a business owner incorporates and starts using the small business tax rate, this can help them increase the amount of money they are investing. By taking the same thousand dollars that they are investing, instead of only $520 going into the investments, they only pay $110 towards taxes, meaning that $890 goes into their investments. Thatís a significant difference, and if used on a regular with basis for several years, entrepreneurs can significantly accelerate how much wealth they can accumulate.
By utilizing this method, business owners can eliminate debt whether itís in their business or personal, and they can also use that method to save up money in order to buy assets in their business later on. By being able to save money faster and eliminate debt faster, he can vastly change a business owners future say Edmonton tax accountant.
There are even secondary benefits that are associated with incorporating says Edmontons tax accountant. One of those secondary benefits is limiting their personal liability in their corporation. Once they incorporate, the corporation shoulders more of the liability then the business owner does, reducing the chances that a business owner could get personally sued. But incorporating also does, is protects the businesses tradename legally, helps business owners qualify for financing, gives their business a certain amount of legitimacy that doesnít exist for businesses who are not incorporated, and it will help business owners get hired as independent contractors, because some companies will not hire independent contractors who are not incorporated in order to minimize their own risk from CRA payroll audits.
The highest personal tax rate in Alberta is currently 48% says Edmonton tax accountant which is the highest marginalized tax rate. Many people think about toilettes the highest tax rates, that not a lot of people are actually paying that high in taxes, but the Fraser Institute says that the average Canadian pays 43% of their income in a variety of taxes, and that they spend 37% of the rest of their income on their basic necessities. Itís very easy to see, that people are paying significantly high amount in taxes. This includes business owners who are not incorporated. Business owners who are incorporated not only can pay a lower tax rates, the small business tax rate in Alberta is currently at 11%, meaning business owners can save 37% in taxes immediately. Also business owners who are incorporated, and utilize the corporate structure in their business in order to continue to minimize taxes as much as possible. Business owners should consider incorporating their business in order to pay lower tax rates, and be able to use the corporate structure to further help their business.
One of the most significant ways that business owners can use the small business tax rate, is by helping themselves accumulate wealth. Thatís one of the biggest reasons why entrepreneurs want to become business owners, is in order to impact their future and accumulate their wealth. Edmonton tax accountant says how this can help business owners accumulate wealth, is by allowing them to pay lower taxes, that enables them to pay more towards their investments. For example, an entrepreneur who is investing $480 towards taxes, meaning that only $520 will be put into their investment portfolio. However once they incorporate, a business owner will take the same thousand dollars, and pay that thousand dollars will pay $110 towards taxes, meaning they can invest $890 per month. That is a difference of 370 additional dollars being invested into the business owners portfolio. That means if the strategy is applied monthly over several years, a business owner can significantly accelerate the amount of money they will have available when they retire.
Edmonton tax accountant says that when business owners utilize this strategy, not only can they help themselves accumulate wealth, they can also help themselves eliminate their debt whether itís personal tax, or debt within the business, business owners can pay for more money towards debt servicing and become debt-free much quicker. Also, by utilizing this strategy in order to save money, business owners will be able to save money for asset purchases much faster than they previously were able to
Another benefit of incorporating is being able to eliminate paying CPP on top of their tax. This can go to about $5000 per year that a business owner has to pay on top of their taxes. Because business owners not only pay the employee portion of CPP but also the employer portion of CPP. Simply by incorporating, business owners can eliminate that $5000 per year that they were paying.