Edmonton Tax Accountant | Utilizing The Small Business Tax Rate
Thereís many benefits that business owners can get from utilizing small business tax rate says Edmonton tax accountant. The highest personal tax rate in Alberta is currently 48%, versus the 11% of small business tax rate that businesses can access if they are incorporated. In order to take advantage of that tax rate, business owners need to not only be incorporated to get that right, also Make more than $500,000 in a single year. If business owners can meet those requirements, they can immediately stop getting taxed at 48%, and utilize an 11% small tax rate.
This can significantly help business owners accumulate wealth, which is one of the main reasons why business owners sought to be, entrepreneurs in the first place, to be able to increase the amount of money they can take home from their business through the unlimited potential of growing by utilizing a lower tax structure in order to have more money in order to invest, can help business owners greatly impact how much wealth they can accumulate. For example, a business owner that has $500 to invest, at the high tax rate would have to give almost half of it to the government in taxes. However that same $500 they have to invest, they would be able to invest almost $490 towards investment. That is almost half itís taken for taxes. By being able to invest the same increased amount every year for several years in a row, business owners can impact how much they have been in their investments. By utilizing the method in both accumulation, business owners can also eliminate any debt they have in the same manner as well as save money in order to purchase assets in their business says Edmonton tax accountant.
In addition to being less in taxes, by incorporating their business, entrepreneurs can eliminate pain CPP on top of their tax. Business owners who are not incorporated, have to pay roughly an additional 10% on the first $50,000 they make which roughly equals $5000 every year in additional tax says Edmontons tax accountant. Business owners need to understand that is an unincorporated business, they not only pay the employee portion of CPP, but the employer portion as well.
Another significant way that business owners can impact their business through minimizing their tax is through planning how to take money out of their business to minimize taxes. Edmonton tax accountant says business owners should strategize with their own accountant in order to plan how to minimize taxes when they take money out of their business. This is especially important if business owners have had an extremely profitable year when year, if they are planning large expenses or vacations, or even maternity leave for those self-employed people who are not able to claim employment insurance people they should be able to strategize with their accountant to take full advantage of the marginalized rates.
There are so many reasons why business owners should incorporate their business, if the only reason is to pay less in taxes, it would be a worthwhile endeavour.
The Fraser Institute says that the average Canadian ends up paying 43% of their income in taxes, Edmonton tax accountant says this is an extremely high amount. And in comparison, average Canadian pays approximately 37% of the remaining income on their basic necessities such as clothing and food and shelter. Business owners can greatly impact that statistic by utilizing the corporate structure in their business to minimize as much tax as possible.
In order for business owners to be able to utilize the small business tax rates in Alberta the first thing they must do is incorporate their business. Business owners should keep in mind that if they make around $50,000, then that is the breakeven point. If they make more money than that per year, they often end up spending more money in order to not be incorporated says Edmontons tax accountant.
There are many other reasons why business owners could choose to incorporate that donít include tax breaks says Edmonton tax accountant. Those reasons are limiting their liability in their business, since incorporating business means the corporation shoulders much of the liability in the business. Business owners can protect their tradename, since registering the tradename doesnít give the business full legal rights to the name. It can also help business owners be able to qualify for financing, as well as gives business sense of legitimacy that doesnít happen when they are not incorporated. Finally, Wynton tax accountant says that many companies will not hire independent contractors who are not incorporated, so that business owners can increase their chances of landing more contracts simply by incorporating their business.
Aside from all those benefits of incorporating, the single biggest reason why businesses would incorporate their business, is in order to take advantage of the small business tax rates. Since a small business tax rates in Alberta are at 11% versus the 48% top personal tax rate in Alberta, business owners can vastly impact their businesses by paying for less in taxes. For example, if a business owner is able to pay much less in taxes, if they are typically investing $1000 towards their retirement, instead of paying $480 towards taxes and investing the rest in their retirement, they can pay only hundred and $110 towards taxes, end up investing $890 in their retirement. By utilizing this strategy over several years, business owners can vastly accumulate wealth for themselves. By utilizing this method in various areas of their life, business owners can eliminate that quicker, and save money for asset purchases in their business faster. If business owners incorporate their business for no other reason than to utilize the small business tax rates, it would be a financially wise move for them. This is owners should contact their accountant immediately says Edmonton tax accountant, to ensure that they are utilizing the corporate structure to minimize taxes in their business is much as possible.