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The biggest difference between proprietorships and corporations is that corporations are a separate legal entity that exist for tax purposes. Proprietorships on the other hand are businesses that are tied to the business owner and the business owners tax obligations. Outsourced accounting services says that when proprietors are figuring out the taxes that they have to pay, they do not pay business taxes, they pay the personal tax rate of the entrepreneur. The average Canadian pays 43% of their income in taxes, and the highest personal tax rate in Alberta is currently 48%. Proprietors potentially end up paying almost half of their entire income in taxes, depending on how much money they make in a year. Corporations on the other hand, are currently paying only 11% in taxes, meaning corporations can save up to 37% in taxes.
However, tax savings are not the only thing to consider when making the decision between running a proprietorship and a corporation. Another benefit to incorporating a business is that it limits the liability of the business owner. Many entrepreneurs who are running proprietorships may not realize that they have a significant risk of personally being sued in their business, no matter how part-time they are in that business. Outsourced accounting services says this means that not only a business owner is at risk for being sued, but all of their personal assets are at risk as well including their house if they own it, vehicle and personal savings. If the tax savings that they get from being a corporation is not enough reason to become a corporation, may be the limited liability they get is. Business owners who incorporate allow their corporation which is a separate legal entity from themselves to shoulder most of the liability in the business, protecting significantly the business owner and their assets. This does not mean that an entrepreneur will not be at risk, it just reduces the risk significantly.
Other secondary benefits of incorporation other than taxes and liability is being able to protect your tradename, be able to get WCB and bringing an amount of legitimacy to a business that is incorporated. Regardless of which structure a business owner wishes to operate, both options can have their benefits and setbacks, and as long as entrepreneurs are aware of the differences, they can make the important decisions they need to run their business, and to become successful.
There are many differences between operating a proprietorship and a corporation says outsourced accounting services. There are benefits to operating both, and as long as an entrepreneur is aware of those differences, whichever decision they make will be the best one for their circumstances. However, if a business owner has decided to operate under the structure of proprietorship, they should understand some of the differences in filing the taxes of their business between proprietorships and corporations.
One of the biggest differences that business owners are going to have to take into consideration when running a proprietorship, is that they do not get to choose their own tax filing deadline they corporations due. Outsourced accounting services says that entrepreneurs who were and corporations can choose their own year end, however proprietors have to file taxes along with the entrepreneurs personal tax return. Although most Canadians have until April 30 to file their personal taxes, proprietorships are slightly different. Proprietorship owners have until June 15 to file their business and personal tax returns. This is an additional forty-five days that they have to file both their business and personal returns, so as long as business owners understand that, they can be prepared.
Another difference between running a corporation and proprietorship, is the style of accounting that is needed. In a corporation, it is required that business owners use double entry accounting to file their financial statements. Proprietorships only have to use a single entry accounting. The biggest difference between the two says outsourced accounting services, is that with double entry accounting all of the money has to be tracked into the business as well as out of the business, so that the bank account balances at the end of the month. This is much more time-consuming, but also is easier to ensure accuracy. Single entry accounting is easier, because all business owners are tracking are all of the transactions that happen in business. Double entry accounting requires accounting software such as QuickBooks, zero or Sage. Single entry accounting only requires a spreadsheet program, or even just a ledger book for an entrepreneur to keep track of it by hand. The only significant drawback of this style of accounting is that it is easier to make mistakes.
If an entrepreneur has decided to operate a proprietorship, and is using single entry accounting, it is still a good idea for them to visit an accountant early on in their business ownership says outsourced accounting services. The reason for this, is so that business owners are able to find out what categories they should track in their business, and one of the most needed totals to have at the end of the year. They can discuss revenue streams, typical expenses, and get an idea of what a high-level projection is for their business in terms of how much money they can earn in a year.
Once a business owner has decided that a proprietorship is right for them, and understood their tax filing requirements, and what they need for their accounting, they will be able to operate a proprietorship successfully.
