Edmonton Tax Accountant | Using The Small Business Tax Rate To Buy Assets
Entrepreneurs who are not incorporated end up paying up to 48% in personal taxes says Edmonton tax accountant. The Fraser Institute says that the average Canadian pays 43% of their income in a variety of taxes that include income tax, fuel tax, CPP, EI and GST. Those same average Canadians pay 37% of their remaining income on their basic necessities. Simply by incorporating their business, business owners can stop paying the extremely high personal tax rate, and start paying the small business tax rate which is currently at 11% in Alberta. There are many benefits to incorporating a business, and business owners can take advantage of all of those reasons by incorporating. As long as they are making their money from an active business, because passive income is not allowed to be taxed at the small business tax rate. Edmonton tax accountant says this means rental income, stocks and bonds, and dividends are examples of passive income that is not entitled to the 11% tax rates. Also, entrepreneurs can to make more than $500,000 per year in order to get that rate.
Once business owners are making that small business tax rate, they can significantly help them in a number of ways says Edmontons tax accountant. One of the most significant ways it can impact their business, is by helping entrepreneurs save money in order to buy assets in their business. This is extremely important, because business owners tend to be less able to qualify for financing in their business, once the business has been in operation for a few years. The cash crunch potential means that many traditional financial institutions will not loan business owners money for asset purchases. So being able to save money faster in order to purchase assets can make a huge impact on the business says Edmontons tax accountant. For example, a business owner who is planning on saving that thousand dollars every single month in order to save for asset purchases, would end up having to pay $480 in taxes, meaning they would only be able to save $520 a month. On the other hand, once an entrepreneur is using the small business tax rate, they can put $890 into savings, which is a difference of $370 per month more that they are saving. This can make a huge impact on a business and how quickly they will be able to make asset purchases in their business, in order to upgrade their equipment, and services and be able to increase their business says Edmonton tax accountant.
Another benefits of incorporating says Edmontons tax accountant is being able to decrease the personal liability that a business owner has in business. Once a business owner incorporates, they are corporation takes on most of the liability in the business. This means a business owner is less likely to get sued because the corporation will be holding the liability. This can make a significant difference in the business owner.
Edmonton tax accountant says one of their favourite quotes is from Michael Gerber, who is the author of the book called the E myth, and the quote is ìthe fatal assumption is: if you understand the technical work of the business, you understand a business that does that technical work.î This means, that even though a business owner may be very good at what their business does, that does not mean they are good at running their business. For example, a dentist may be extremely good at working on peopleís teeth, but it doesnít mean that they know how to run a dental practice. As a result, many entrepreneurs often end up paying too much tax, or donít understand why they should incorporate. Or they have incorporated, but are not utilizing the corporate structure to minimize their taxes. Business owners can significantly increase their businesses Fortune by incorporating their business and utilizing that corporation in order to minimize the taxes that they pay in their business.
Edmonton tax accountant says business owners who incorporate are able to save money a lot faster in order to buy assets the reason for this is because small business tax rate in Alberta is at 11%, however the personal tax rate in Alberta is that 48%, which is the highest marginalized tax rate, and an increase of 9% from the last tax rate which used to be 39%. Business owners who incorporate their business, can immediately start paying only 11% in taxes, which helps them save money in their business in order to buy assets. How that works, is by paying less in taxes, they will be able to increase how much money they are saving every single month in their business. This will allow entrepreneurs to save more money a lot quicker. Since assets are not considered expenses, business owners can have the funds available to purchase assets a lot faster than they would if they were still paying the 48% tax rate. This can mean a huge difference to business owners who are unable to qualify for financing because their business has been in operation to long.
Another huge benefit of the corporate structure that business owners can utilize in order to minimize taxes says Edmontons tax accountant is to help a business do some efficient tax planning with their accounting team in order to spread out and reduce taxes from higher income years. If a business owner is not incorporated, they have no choice, but to pay taxes on that huge amount of money that they made in a single year. Edmonton tax accountant says on the other hand, businesses who are incorporated can plan how to minimize their taxes by how they plan on taking money out of their business throughout the year. This is extremely beneficial if a business had a very profitable year followed by a very leading years says Edmontons tax accountant, or if business owners are planning on having big expenses or extended vacations in the coming year. Business owners should take full advantage of the marginalized rates.