Edmonton Tax Accountant | Using The Small Business Tax Rate
The average Canadian pays 43 per cent of income in taxes according to the Fraser Institute, however businesses who incorporate can utilize the small business tax which is currently at 11% in Alberta says Edmonton tax accountant. Itís important for business owners to utilize the corporate structure in order to minimize tax as much as possible in their business. In order to get the 11% small business tax rate, businesses must be incorporated, and make no more than $500,000 each year.
By utilizing the small business tax rates can help business owners accumulate wealth because they will be able to have more money available to them in order to invest says Edmontons tax accountant. Business owners who have the same amount of money to invest each year, will pay less taxes once they incorporate in utilize the corporate structure, and will be able to save more each year. Over several years, this can vastly impact how much wealth a business owner can accumulate. Another way that this can significantly help business owners, is allowing them to pay down their debt quicker. By utilizing the lower tax rate, they will be able to put more money into debt reduction, allowing them to pay off their debt significantly faster than if they were paying significantly higher in taxes. This can also help business owners save money in order to purchase assets in their business. By paying less taxes, business owners can save more money, and to be able to purchase assets for the business faster than if they were paying higher taxes.
Another benefit of being incorporated and paying the lower tax rate, is that business owners will be able to stop paying CPP in addition to tax. Edmonton tax accountant says business owners who are not incorporated must pay roughly 10% additional tax on the first $50,000 that they make in a year, which works out to $5000 additional and tax payments per year. The reason for this, is that business owners must pay CPP on top of their regular tax. Theyíre not only paying the employee portion of CPP, but the employer portion as well
There are several secondary benefits to incorporating as well says Edmontons tax accountant. The benefits of such as being able to limit their liability in business. Once a business incorporates, their business shoulders the liability of the corporation. This doesnít mean a business owner is never at risk, but it significantly decreases the liability the business owner has in their business. Also says Edmonton tax accountant, incorporating legally protects the businesses tradename. Many business owners assume that by registering their tradename protects illegally, but that only acts as a placeholder. By incorporating their business, they retain the legal rights to their name, protecting it from anyone else who tries to use that name. Another secondary benefits of incorporating is being much more likely to qualify for loans and giving a business a certain amount of legitimacy that unincorporated businesses donít have.
There are many benefits that businesses can get through incorporating their businesses Edmonton tax accountant. However, but of the most important benefits of incorporating is being able to utilize the small business tax rate. The reason this is so important and very significant for businesses, is because they highest personal tax rate in Alberta currently is 48%, with the average Canadian paying 43% of all their income in taxes. Business owners who incorporate can immediately start taking advantage of the small business tax rate which is currently 11% in Alberta. This is extremely important for businesses, because that means they could be saving up to 37% in taxes instantly
In order to get the small business tax rate, business owners first must be incorporated. They also have to be making no more than $500,000 per year. This is most small businesses in Alberta. This can significantly help business owners not only accumulate wealth in their business, but allow them to eliminate debt and purchase assets in their business says Edmontons tax accountant. How can help with those items is by allowing the business owner to save more in taxes. For example, if the business owner usually puts thousand dollars into investments, without incorporating, business owner would have to pay for hundred and $80 of that thousand dollars towards taxes, meaning only $520 will make it into the investments. Once a business owner incorporates, they will be able to pay only hundred and $10 in taxes, meaning that they can put $890 into their investments by implementing the strategy every month for several years, business owners will be able to very quickly accumulate wealth in their portfolio. Edmonton tax accountant says the same principle can be used for eliminating debt, by allowing them to pay more of their debt faster, as well as saving for asset purchases in their business, but paying less taxes, business owners can save more money in order to make asset purchases in their business.
Many business owners often wonder how much money they need to be making per year in order to make becoming incorporated worthwhile. Edmontons tax accountant recommends that business owners who are utilizing the small business tax rate only for tax benefits should make around $50,000 a year in order to breakeven. Once business owners are making more money than that in the year, itís costing more money not to be incorporated.
Another benefit of utilizing the small business tax rate in the business, is it will allow businesses to spread out and reduce tax from higher income years. The reason for this says Edmonton tax accountant, is because incorporations can choose when they bring draw dividends from their corporation. Unincorporated businesses canít do that, which means if they had a very successful year, and made a significant amount of money, they automatically will be paying higher taxes. However, businesses who are incorporated, can choose when theyíre going to draw there dividends from the corporation, enabling them to spread out the money they draw throughout the year in order to minimize the amount of taxes they pay