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The differences between what a proprietorship is and unincorporated business is the proprietorship is tied to the entrepreneur and the entrepreneurs tax obligations while the corporation is its own separate legal entity for tax purposes. Of the first accounting services says that there are a lot of benefits that entrepreneurs can reap from owning a corporation, but in order to make the decision, they should understand what what a corporation will do for their business, and what would happen if they state a proprietorship.
One of the biggest benefits of incorporating a business says outsourced accounting services is that once an entrepreneur signs those corporation papers, they have limited liability in their business. In other words, a business owner that has a proprietorship, even if there only operating it on a time basis are at risk for being sued. That means not only are they personally at risk, but their house, car, and personal savings are all at risk as well. However once they incorporate, the corporation shoulders a lots of that liability. That does not mean that an entrepreneur does not have any risk at all of being sued, but it minimizes their risk greatly. Sometimes, entrepreneurs do not want to incorporates because they think it is too expensive, but minimizing the risk of being sued can convince them otherwise.
Another reason why an entrepreneur may choose to incorporate, is because proprietorships are not tax efficient. Once a business makes a minimum of fifty thousand dollars a year, they are far better off to incorporate solely for tax benefits. Outsourced accounting services says that once a business owner reaches that threshold, it is actually more expensive to operate as a proprietor tax wise then spending the money to incorporate their business.
If an entrepreneur decides they still want to operate their business as a proprietorship, they should keep several things in mind such as tax filings for proprietorships have different requirements than corporations. While an entrepreneur is able to file their proprietorship at the same time as their personal tax return, there is a different deadline. Unincorporated businesses have a deadline of June 15 to file, however business owner should keep in mind that if they owe any money, Canada revenue agency will actually start charging them interest as of April 30. While entrepreneurs are able to file their taxes at the same time as their personal tax return, they need to have a different tax form. The T two one two five needs to be completed, but returned at the same time as their personal tax return to complete their taxes properly.
There are several things that entrepreneurs should take into consideration when deciding to operate their business as a proprietorship or a corporation. By understanding all of the differences, entrepreneurs can make the best decision for their business.
Business owners should understand that proprietorships and incorporated businesses are different for a lot of reasons says Outsourced accounting services. While many business owners start operating their business part time, therefore do not want to go through the trouble of incorporating their business, should be keeping several things in mind as they operates there proprietorship to ensure they are doing it as efficiently and as correctly as possible.
Something that business owners should keep in mind when they are taking care of the accounting for their ridership, is that while most corporations require a double entry accounting system, proprietorships do not need to have such a sophisticated accounting system. Not only do they not need accounting software, but entrepreneurs can even keep track of all of their expenses and revenue with a spreadsheet. A double-ended accounting system is one where they must balance the amounts at the end of the month, for example for every debit there is a credit somewhere else. This is used, because it is easier to fix mistakes. However, with entrepreneurs keeping track of single entry accounting with a spreadsheet for their proprietorship it is less work, but there is a higher risk of making mistakes and then not being able to catch them.
Because of how much more opportunity there is a mistakes in a proprietorship accounting system, outsourced accounting services says that it is a good idea for entrepreneurs to ensure that they are keeping separate bank accounts and credit cards. Not only does this provide an added level of assurance, it also provides an extra layer of audit protection as well. Ensuring that all of their business transactions come out of their business account or business credit card, and allows business owners to be very clear about the intent of all of their purchases. If an entrepreneur keeps all of their business expenses and personal expenses together, it may be hard not only to figure out what certain expenses were, but if they are audited, it can be almost impossible to tell the difference between the two. Regardless of which accounting system an entrepreneur decides to use, they still need to keep all of their receipts.
If an entrepreneur takes care of their accounting with a spreadsheet, and separates their bank accounts, outsourced accounting services still recommends that entrepreneurs use an accountant to help them file their tax return. This will be one more business professional that can help a business owner understand if the expenses are reasonable and if they fit CRA parameters. They can also help an entrepreneur ensure that no expenses are missing and that all the expenses are properly classified. If an entrepreneur is going to be running a proprietorship, and shall bring more risk, the lease thing that they can do for themselves is minimize risk when they are ready to send that information off to the Canada revenue agency.
Keeping records is very important as a prior, and ensuring that business owners are doing everything they can to be clear, can help maintain as accurate records as possible when they file their year-end.
