Part-time CFO | Accumulating Wealth Utilizing Dividends
One reason that many entrepreneurs decide to go into business for themselves says part-time CFO, is that they can increase their own personal wealth. They understand that employees have limited opportunities to increase their salary. because of that, many entrepreneurs decided to open their own business because of the unlimited potential in increasing their revenue. Business owners should keep this in mind when deciding how to take money out of their business, that they can utilize that is a efficient tax strategy.
The reason why business owners can utilize the money that they take out of their business is a tax strategy, is because the differences between the different ways that they can take money out of their business. When an entrepreneur takes money out of their corporation, it needs to be done one of two different ways says part-time CFO. Either through salary, or dividends. The different amounts are indicated in the business differently, and therefore are taxed differently.
The difference between salary and dividends is that dividends are not deductible from the income of corporation, therefore business owner must directly withdraw them from the prophets of the business. This means they donít show up on the income statements of the business and business owners pay the small business tax rate of 11% on them. Salary on the other hand says part-time CFO is deductible from the income of the corporation, and so they do show up on the income statement of the business. Because of this, is considered business owners income, and is taxed personal tax rate which is currently topping out at 48%. Business owners are going to want to avoid taking absolutely no salary, so that they donít end up going Canada revenue agency in back taxes for not paying any taxes at all in the year, but theyíre going to not want to take everything a salary, so they can avoid paying the top personal tax rate. By taking a mix of the two, business owners can create a strategy that helps them save thousands of dollars a year in taxes.
Business owners who hire an accountant in order to save money on accounting services, often find out that they are getting exactly what they pay for, and are paying far more in taxes than they would if they hired a great accountant from the start says part-time CFO. In order to get a great text strategy, accountants need to ask many questions from business owners in order to determine how this is going to put together. Other considerations that need to be made include the business owner have any other income thatís coming in, it is it using salary or dividends? Do they have a spouse, and is that spouse take money out of the corporation as well, and did they have any unrelated income. If so, is it salary or dividends? is just some of the questions that accountants need to consider when creating the tax strategy. If anyone says that they can answer the question simply or without asking a lot of questions about the business in the business owner, theyíre clearly not understanding the situation well enough.
Many business owners become entrepreneurs in order to affect how much wealth they can accumulate says part-time CFO. One way that they can do this, is by utilizing great accountants in order to maximize the amount of taxes that they can save in an efficient tax planning strategy. By being able to save thousands of dollars every year in business, they impact how much cash flow they have in their business, and how much money will be able to put away into investing for their future.
Many entrepreneurs donít understand that one of the biggest tax implications they can decide is how to take money out of their business, through salary or through dividends says part-time CFO. The biggest difference between salary and dividends, is the amount of taxes that are applied, therefore this is the most important thing that business owners should answer in order to have the most efficient tax plan possible. Itís a complicated issue, business owners need to ensure that they are hiring the most effective accountant that they can in order to come up with the best strategy possible. If business owners try to save money on accounting services, they typically end up having to pay far more in taxes than they would have saved on a great accountant.
Business owners may have already hired an accountant to help them with their taxes, and they may wonder if that accountant is doing the right job for them says part-time CFO. One way that they can easily check that, is by reviewing their financial statements, or their previous years tax return. If they notice that they are paying themselves through either of percent dividends or hundred percent salary, this can be a warning sign that not enough thought has gone into creating this tax strategy because the most efficient tax strategies usually contain a combination of dividends and salary. Although this is not hard and fast rule, business owners can use this information to start a conversation with their accountant to determine why they decided this was their best tax strategy.
The business professionals at Spurrell and Associates have created formalized processes for creating business plans and tax strategies for entrepreneurs. Part-time CFO says that they have these formalized processes that can help get as much information from their client as systematically as possible, so they can offer the same type of tax planning service to all of their clients efficiently and effectively. They also have processes in place for how they can use those numbers and information in order to end up with a great business plan with amazing tax strategies. These processes mean that itís duplicatable, and that can be done efficiently.
Once business owners have a great text strategy in place, they can use the money that they save on taxes, to put towards saving and investing in their future.