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E-Myth – “Why most small businesses don’t work & what to do about it”

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Edmonton Tax Accountant | Using The Small Business Tax Rate To Save Money

The reason why entrepreneurs want to go into business for themselves, is to be able to save money for their future says Edmonton tax accountant. Business owners have an unlimited potential to increase the amount of money that they make in their business where employees canít effectively change how much money they make. Business owners can utilize the small business tax rates along with the potentially how to generate as much revenue in their business as possible, and can drastically impact how much money they set aside for their future, save money and eliminate debt. The personal tax rate in Alberta is currently the highest marginalized tax rate at 48%, which is an increase of 9% over the last maximum tax rates. The small business tax rate on the other hand says Edmontons tax accountant, is currently at 11% in Alberta. Business owners must be incorporated in order to get this rate, and make their income from an active business, not passive income such as dividends, rental income or stocks and bonds.

What is a business owner incorporates, they will be able to utilize the small business tax rate in order to save money in their business. How they would do that, is simply by being lower taxes, that means that they have more money at their disposal in order to put towards savings. For example says Edmonton taxs accountant, if an entrepreneur is looking to put $1000 into their savings, at the personal tax rate they used to be paying, they would have to pay for hundred and $80 towards taxes. That means they would only be able to save 520 of that thousand dollars into savings. By paying the lower tax rate, that means business owners would have to pay only hundred and $10 towards taxes, meaning that they could save $890. Edmonton tax accountant says that is a difference of $370 that is being saved over and above what they had been able to save while paying the personal tax rate of 48%. By being able to save this much more money each month, and through the years, means business owners will be able to have more in their savings then they would if they were not incorporated. Business owners can also utilize this strategy in order to put money aside into their investments, eliminate their debt, and purchase assets for their business.

Being incorporated can also help business owners minimize taxes by spreading out the income that they take out of their company from higher profit years. If the business was extremely profitable in one year, they should plan with their accounting team on how theyíre going to take money out of their accountant in order to minimize how much money they are going to pay in taxes. This is extremely beneficial especially if the business owner had a lower profit the following year, or if they are planning on making big expenses, or having of the leave in their business and want to be able to pay themselves while they are gone.

Statistics say that the average Canadian pays 43% of their income in taxes that include income tax, fuel tax, GST, EI as well as CPP according to the Fraser Institute says Edmonton tax accountant. The highest marginalized tax rate in Alberta is 48% for the personal tax rate, meanwhile the small business tax rates that business owners who are incorporated have is 11%. Itís important to note that business owners must be incorporated in order to get this rate and be able to utilize the corporate structure to minimize their tax. Not only did business owners need to be incorporated in order to get that rate, their income must come from an active business meeting, no stocks or bonds, rental income or dividends are allowed to be taxed at this rate.

How this lower tax rate helps business owners save money says Edmonton tax accountant is by helping them increase how much money they can put into savings. By paying lower taxes, business owners can save more money each month into savings. For example, if the business owner is trying to save $1000 a month, they would have to spend $480 on taxes, meaning that they would only be putting $520 into savings each month. At the smaller business tax rates, entrepreneurs who are saving the same amount of money, would only have to pay hundred and $11 in taxes, meaning that they could save $890 a month, a difference of the $370 of additional money being saved simply because a business owner is paying a small business tax rate of 11% instead of the 40% personal tax rate.

Edmonton tax accountant says a business owner should be able to utilize this strategy in order to invest in their RRSPs and impact how much wealth they can accumulate, and business owners can also eliminate the debt in their personal life, or business faster. Business owners who save money this way, will be more likely to be able to buy assets much faster than businesses who arenít saving money, and this is especially helpful if business owners are not able to qualify for loans, as many business owners do have a problem qualifying for loans after their business has been in operation for several years.

Thereís also other benefits of becoming incorporated that include protecting their tradename says Edmonton tax accountant. Many business owners assume that simply by registering their tradename registries office legally protects their tradename. However, business owners who register their tradename are simply creating a placeholder for that tradename, anyone can incorporate using that tradename and own the legal rights to it. However, once a business owner incorporates their own company using that tradename, they protect its legal usage. A business owner can also decrease their personal liability by incorporating, gives their business a certain amount of legitimacy, and will allow themselves to get hired as independent contractors at companies who wonít hire unincorporated contractors.