Edmonton Tax Accountant | Why Incorporating Helps Businesses Reduce Taxes
Edmonton tax accountant says the average Canadian is paying huge amount and income taxes such as CPP, EI, GST, fuel tax to name a few. Average Canadians spend 37% of the rest of their money on basic necessities. The highest personal tax rate in Alberta is 48%, with the average Canadian paying almost that maximum. Business owners often get into business ownership is a way of changing their ions and being able to less in taxes, and see the more money for their future. Business owners can take advantage of the 11% small business tax rate that exists in Canada. in order for business owners to take advantage of that tax rate, they need to be incorporated in their business. They also need to be making the money through an active business that is currently running. For example, any passive income is not eligible for the small business tax rates. Passive income such as stocks and bonds, rental income, dividends. They also need to make no more than $500,000 in a year. If business owners meet these requirements, they are able to enjoy 11% tax rate, and create the future they have always dreamed of.
The way that utilizing 11% of small business tax rate incorporating says Edmonton tax accountant, is by being able to fix plan with their accountant, and be able to decide when they can take their dividends and salary out of their business. For example, if a business owner has a very profitable year, theyíre going to want to be able to take money out of their business in a way that minimizes the taxes that they pay on that money. Businesses that are not incorporated, are not able to choose, if they have a hugely profitable year, theyíre going to paying higher taxes. This structure can help business owners plan how they can manage large expenses in their business, minimize the impact of less profitable years, or even how they can be absent from their business for a period of time but continue to draw a salary. Business owners can learn how to take full advantage of the marginalized rates by strategizing with their accountant.
The smaller tax rate can also help entrepreneurs accumulate wealth for themselves, through lower tax rates. If they take the same amount of money they have to invest, but at a lower tax rate, the pay taxes on that money, and as a consequence be able to put more money towards their investments. For example, a business owner who has $1000 to invest, under the personal tax rate, would only be able to invest half of that to their retirement. However, if business owners are utilizing the small business tax rates, the same thousand dollars isnít then $890 invested. This can have great impact on how much wealth a business owner can accumulate and how fast they can accumulate it says Edmonton Tax Accountant. Business owners can utilize this method is a way of eliminating their debt as well as saving money in their business in order to pay for asset purchases, or leaseholder improvements.
Entrepreneurs are not incorporated in their businesses, are paying too much tax says Edmontons tax accountant. And often, even the business owners who have appropriate their business, havenít strategize with their accountant in order to utilize the corporate structure to minimize their taxes as much as possible. Business owners can greatly impact their business simply by incorporating a business and taking advantage of the small business tax rates. Business owners need to understand that the highest personal tax rate in Alberta is currently 48%. And that the average Canadian pays 43% of their income by amount, and is extremely limiting to how much wealth a business owner can accumulate. Since many business owners wanted to go into business for themselves in order to accumulate wealth, and impact their own future. The small business tax rate on the other hand is currently sitting at 11% in Alberta. In order for businesses to take advantage of this extremely low tax rate, they must incorporate their business, and the income that they are making must be made from an active business. Edmonton tax accountant says passive income is not included in this tax rate. That means income generated from stocks, rental income, bonds or dividends accountants passive income and get taxed at the personal tax rate.
By utilizing the corporate structure, entrepreneurs can work with their accounting team in order to impact their business and reduce tax from higher income years in their business. If an entrepreneur and one year that made a significant amount more money in previous years, by utilizing the corporate structure, business owners will be able to plan how to take many of their business in order to minimize taxes. This is extremely beneficial, especially if the business owner is going to be having large expenses, or be absent in the business for certain period of time. It will be able to plan how to pay for those large expenses, will be able to leave their business for a certain period of time and continue getting paid. Business owners need to work with their accountant in order to increase their ability to minimize taxes.
Another way that the lower tax rate can help business owners accumulate wealth, is by helping them invest more money into their portfolio. If they are able to save the same amount of money that they always have, the less taxes on that, they can take even more money and invested. By reducing their taxes from 48% to 11%, that can drastically increase how much money they are putting way to their investments, which can grow more over many years says Edmonton tax accountant.
Entrepreneurs should be able to drastically improve their future, by saving money through efficient tax planning says Edmonton tax accountant. Itís very important that businesses speak to their accounting team and take steps towards becoming incorporated in order to take advantage of the small business tax rates.