Hire a CFO Edmonton | When Should I Incorporate
Okay. Hi there. And welcome to another edition of ask for real CPA. Uh, today we’re talking about when should I incorporate, and I have a y’all way with me here again. Uh, so y’all wait, how many days would go up before the end of a t for filing deadline? Coming right up on it. I’ll tell you, hey, get her done. So, um, but the, the court that I have, you know, regarding to windshield, I incorporate it’s from Zig Ziglar and it says, if you’ve got the wrong plans, I don’t care how many positive qualities you’ve got, you’re going to end up in the wrong place. Hire a CFO Edmonton, you know, the statistic here is that we have, you know, the highest personal rate and Alberta’s 48% and the small business rate is a fantastic 11%. And you can only capitalize on that if you’re incorporated. And the story is business owners, they often end up paying more tax than it would cost them.
You know, the extra cost to incorporation, uh, you know, they avoid corporate incorporating because of the extra costs and it, they ended up paying more tax than it would actually cost them to incorporate. So we all, what do you think, are there questions? Yes. These business owners should be asking when deciding to incorporate, well, first of all, what is another term for an unincorporated businesses and how do they file tax? Yeah, so the other alternative to an incorporated business, it’s a proprietorship. And then proprietorship, you know, a unincorporated business proprietorship means the same thing. They file their taxes in conjunction with their personal return. So it’s a schedule a t two, one, two, five Steven to businesses and professionally income, and it’s an extra schedule to your personal tax return. Hire a CFO Edmonton, that’s essentially how they, uh, they filed taxes. You know, we normally use single entry accounting, which just gets the totals and the various categories by the client and go through them with them on, you know, what’s deductible, what’s not, are we missing anything?
But it’s relatively a simplistic process and it’s done in conjunction with the filing of their personal taxes. Hire a CFO Edmonton, what is the main advantage of unincorporated businesses? Yeah, you’re hard pressed to find too many advantages. The main ones is that it’s cheaper, so it’s cheaper to do the work for, uh, you know, for an unincorporated business. Like I said, it’s just a schedule on your personal tax return. We’re normally just looking at a totals and various categories that have been prepared by the business owner and with our guidance, we give them the categories and they prepare the toll, the, you know, calculate the totals and each of those categories. So total revenue, total advertising expense, total office supplies, you know, total, uh, travel expense. And we work with them to find the, the right deductions and, and make sure there’s nothing missing, but it’s, it’s a relatively simplistic process than going through the, the incorporation process and doing formal financial statements, you know, corporate tax return, t fours and fives, a personal tax return and some tax planning as well.
Right. Hire a CFO Edmonton, what aspect of CPP surprises most unincorporated business owner? Yes, so we, back to the tax rates to the, you know, highest personal rate is 48%. Hire a CFO Edmonton, you know, in your rates go up until you get the highest bracket. Uh, and usually, you know, business owners are pretty sophisticated. They go online and they start looking at how much I’m making and what are the tax brackets on that income. And they’d come up with something and then they’re completely blindsided by CBP. So they have to pay their tax. But once you’re operating an unincorporated business, you have to pay CPP as well. So the same CPB you paid as an employee, now you’re paying both the employee and the employer contribution. So if you, if you ever had a job and you had CVP deducted off your check and you paid you 2,600 bucks and CPP roughly for the years, the maximum, I know as soon as you’re running your own business and your proprietorship, you not, you don’t just have to pay that employee portion that 20th, same 2,600 bucks.
You’ve got to pay the employer portion too, which is another 2,600 bucks. So you know, when approximately, you know, 50 to $100 in addition to that tax that you sold meticulously calculated. And that’s usually what they’re blindsided by is that extra 50, 200 bucks and there’s no way around it unless you’re incorporated. Okay. Hire a CFO Edmonton, at what profit level do the tax benefits of incorporating normally outweigh the costs? Yeah, there are some secondary considerations which we will, we’ll get into here too. But you know, the first thing is we just look at it, is this cheaper? Is it cheaper for you to be incorporated or not? And you know, there’s some considerations, but I, I put a general rule out there and that, you know, Hire a CFO Edmonton, the disclosure, this is the general rule doesn’t work in every situation, but, um, if you have $50,000 of income and that’s income before you pay yourself as the owner of the business.
So after you’ve collected your revenue, paid your business expenses, and you have $50,000 or more in income left over, you should really look at the being incorporated and you’re starting in that neighborhood of you’re paying, you know, tax plus $5,200 or seat would be $200 can go a long way in a new business. Hire a CFO Edmonton, in terms of what you can, what you can do with it. Um, so I would say, you know, at at about 50,000 bucks, normally this spreadsheet is going to tell us that it was actually cheaper for you to be incorporated even considering the, uh, you know, the exter cost and maintaining that corporation once you factor in the tax savings. Okay. Um, how does incorporating how protect your personal assets? So you’re, you have what’s called a limited liability, uh, once you’re operating through a corporation and it is not absolute, uh, but what that means is you’re conducting business in a separate legal entity.
So that business, you know, creates a loss or damages and, and it gets sued or they’re suing that business, they’re sewing the assets inside of that business. And it’s much more difficult for them to get to the, the business owners. And specifically they didn’t, when they can really never get to the shareholders. It’s, can they get to the directors of the business and a small business, usually the shareholders and directors at the same, uh, but can they actually, you know, get to the director of the personally, it’s not that they can’t, it’s just extremely unlikely that they can. So, you know, if you make a mistake in your business, you know, it, if something happens, you, you, uh, if you get sued and there’s a damage and what they’re looking at the assets and the business, not at your personal assets. And you know, people sometimes think that, you know, I don’t have any risk is never zero.
It’s never zero. So it’s just, you know, if you think it’s zero, you’re not thinking broad enough because, you know, have you ever gotten to a car to drive to anywhere for your business, it will. Guess what you could, you could have got sued for that, um, and conducting the business. So, even if you know, maybe you’re a graphic designer and that’s really kind of a low risk as opposed to maybe a plumber who can cause a big leak in a building that’s really high risk type of thing. Um, but you know, we look at what that risk factor is and it’s never zero. You have to be honest with yourself. I’ll always something that could happen even if it’s just driving the car.
Does registering a trade name offer the same protection as incorporating? Yeah. So I mean, I don’t claim to be a, uh, a tray, Mac, mark, Lord, but everyone that I’ve ever went to and every time we get advice on this from a client, it always comes back the same way is if you want to protect a trade name, you should incorporate that name that, that, uh, registration that you file at corporate registries. It’s more of a placeholder. Um, so, you know, people think that they go and they pay their 20 bucks or 40 bucks a corporate registries and they register a training for their unincorporated business and that gives them a legal right to it. Um, you know, as it’s a, you know, uh, we’ve been recommended to us on several cases that if you want to protect that going, incorporate that name because that person who goes and incorporates overtop of that trade name, now they have the legal right to it.
Um, and not the person who registered the trade names. So if you want to have a legal right to that business, you know that trade name, you want to incorporate it. So Vettery name means anything to, you know, that’s a consideration and when you should incorporate. Okay. Hire a CFO Edmonton, how can incorporating help you get WCB coverage in Alberta? Yeah, so we run into this trap sometimes a lot of it in the construction industry, but it can be an under industries as well, is WCB in Alberta, they basically have a policy that they want to issue the coverage to who they called the prime contractor. So let’s say you’re not working for the end user themselves. So on a construction project, for example, you know, you’re not working for the homeowner, you’re working for a general contractor and the general contractor has a relationship with the customer.
And you worked with general contract here, a WCD will take the position that, that, that general contractor is the prime contractor, which, and they’ll say that you are ineligible for WCB coverage as a, the subcontractor. And you know, this can happen on a, uh, Suncor site or whatever you have. And they’ll say, so of course you get your WCB and Suncor turns around and tells you we’re not going to give you the job unless you get WCB coverage. So the way around it is you incorporate, once you incorporate WCB has it written administrative lead to their policies that they’ll give you the WCB number and they will query who’s the prime contractor anymore. So sometimes it’s just a necessary evil in order to get WCB coverage in awkward. Hire a CFO Edmonton, well, banks issue business loans, I incorporated businesses, uh, I don’t want to say it’s impossible. I just want to say I’ve never seen it. So, um, I’ve never seen a real, uh, any, you know, loan of any substance, you know, other than maybe a credit card and this brand. And Jen said, the company, you know, nothing of any really high value that’s going to be issued. So if you need to get a business loan of, of almost, you know, any significance whatsoever, you’re going to want to incorporate because the bank or other lending institution is going to insist that a, you’re incorporating, that’s just the law of the land.
Um, why do some people in companies refuse to hire an incorporated contractors? So if you watch one of our other videos on contractors for employees, you know that all the risks, you know, is, is when people hire unincorporated contractors. So when they hire an incorporated contractors, they’re always worrying that that unincorporated contractor, it could be deemed their employee and usually for that could make them, uh, have to repay. Um, you know, payroll remittances, you know, a tax CPP and the eye that they should have deducted off that check and do so retroactively long after that contractor is gone. I’m also, you know, they can be deemed an employee for employment law purposes and then they’re entitled to vacation and Severance Bay and another play and benefits like that. So, you know, in order to I invoid that risk, they just take that blanket policy is say, hey, we’re not good at, we’re not going to hire unincorporated contractors.
So, uh, so sometimes in order to get the, the job to begin with, you have to be incorporated. Also. There’s kind of a bit of a perception thing too. So even if it’s not a hard no, but sometimes they just like, oh, this guy’s not a real business. He hasn’t even take the time to incorporate some do I really want to do business with them? Uh, so there’s a bit of a perception thing that can come into play, but you know, it comes down to sometimes you just won’t get the job unless you’re incorporated. Well, Hire a CFO Edmonton, that case, do most unincorporated businesses go on to become a successful business? So my father practice curious, spend more than a decade now, firm’s been around for more than eight years and we start going back through the history are unincorporated businesses and which one really graduated from being an unincorporated business to a really successful business as opposed to ones that just said they jumped in with both feet from the day one and said, I’m going to incorporate from day one.
How many of those, you know, became successful. You know, this has just become a, a learning process for us that most people who do not in court, they don’t jump in with both feet. They never really get that law of inertia going, getting a business going at any scale. It requires an tremendous amount of, uh, effort. And if they don’t jump in with both feet at some point and just take the plunge, it never really happens. Uh, so really when you’re, when you’re not incorporating a business on the offset, your, you really saying that? Well A, it’s, it’s a, I’m okay with the, the, the risk, the, uh, that it’s going to be, but be in probably more importantly is, is, you know, this is more of a side hustle than a business that I want to grow because you’re, you’re kind of admitting to yourself that I’m not really going to put in the required effort to get to a 50 k a year or it becomes a no brainer anyways.
So, Hire a CFO Edmonton, or to a point where I really care about the brand that I’m spinning, I should be spending hours and hours to build. So, Hire a CFO Edmonton, yeah, so, uh, just anecdotally, we haven’t seen a lot of success for business owners student who I would say, you know, tiptoe toe into the water and do so it was an unincorporated businesses. The ones who tend to succeed are the ones who, who jumped in with both feet and they exert that kind of effort to get a business rolling. Right. Which just takes a lot of effort. So, so if you’re looking for, uh, you know, if you, if you want to take the island, you got to burn the ships. Most businesses that are successful, you know, really just take the plunge and incorporate because they, they, they’re kind of betting on success rather than betting on staying small. So I think that’s what we have here today. Thanks again for tuning in. Uh, you know, as always, if you get the life like button there, subscribe button would be much appreciated. And if you have any questions, you’ll please leave them in the comments below and we’ll do our best to address them in future videos. Thanks very much.