Part-Time CFO | Dividends Versus Salary?
When business owners are making the decision how they should get paid from their corporation when consulting their part-time CFO, the question is a lot more complicated than should they pay themselves salary, or dividends. Usually, and efficient tax strategy will have the business owner being paid partly in salary and partly in dividends based on a specific set of circumstances. Business owners should know that only chartered professional accountants understand the situation deeply enough in order to be able to make that decision efficiently. If they see that they are being paid either hundred percent salary or hundred percent dividends, that should be a warning sign to the business owner that whoeverís been making the decision for them has not put enough thought process into it.
Business owners may want to hire the appropriate part time CFO in order to make that decision. Since itís so complicated, business owners should spend enough money on an accountant that is going to be able to take all of the information easily and distill it down. Thereís many questions that they are going to be able to ask the business owner in order to make that determination. At Spurrell and Associates, they have a formalized process that helps them gather the correct information thatís needed, get the numbers reliably and then process the numbers efficiently. A worthwhile accountant that is working on this, can help an entrepreneur save thousands of dollars every month in saves taxes.
Business owners must decide how to take money out of their corporation, simply because they must pay taxes when they take money out of their corporation. No matter which way owners make the decision to take the money out, they end up having to pay taxes on that, because they canít take money out of their business tax free. By contacting a part-time CFO, business owners will be able to tell them the circumstances they need in order to make that determination.
One of the questions that part-time CFO is going to be able to ask the business owner in order to help make the decision, is if there is any other unrelated income in the family. Whether a spouse has another job, if they are receiving dividends from another business, a rental property, or land, this is going to drastically affect if they pay themselves salary or dividends. There may be income splitting opportunities, and depending on who has additional income, and how it affects the income splitting is going to factor in greatly. Business owners have to take into consideration CPP implications for example if paying salary, the business owner must also pay Canada pension plan however if there paying dividends they donít.
Business owners are also going to need to take into consideration that child care expenses are going to affect the question whether they should take salary or dividends out of their business. The reason for this is because childcare expenses are only deductible off of salary, and this can affect who out of the two business partners takes salary when they are deciding income splitting.
the decision on whether or not an entrepreneur should get paid salary or dividends in their business, or a mix of the two is very dependent on what part-time CFO they use. Business owners need to avoid trying to save money on accounting services by hiring the most inexpensive accountants they can find. Inefficient accounting services often costs business owners far more in additional taxes than they would pay for a good accountant. A warning sign that business owners can use to see if there accountant has not put enough thought into whether they should get paid in dividends or salary, is if they see on their financial statement or tax return that they are getting paid hundred percent dividends or hundred percent salary. Itís rarely as cut and dried is that, itís usually a mix of the two based on a specific set of circumstances.
Childcare expenses will go into the decision-making process how a business owner is going to be taking their salary and dividends out of the business. The reason is because childcare expenses are only deductible off of earned income so the business owner that is responsible for claiming childcare expenses is most likely going to want to take a higher percentage of salary than dividends says part time CFO services.
As it did with childcare, divorce is also going to affect how business owners split up dividends versus salary. By consulting their part-time CFO, business owners should share any separation agreements that they have, and more often than not, dividends strategies are more difficult to explain in the divorce litigation. If they are going through a divorce or have a separation agreement in place, business owners should divulge that to their part-time CFO in order to help make the determination. They will then be able to ask questions that are both qualitative and quantitative in order to make the best determination for the business owner.
Another variable that business owners will have to take into consideration is how future losses are going to affect whether they take dividends or salary out of their business. Business owners and their accountant need to understand what the losses are in the past or currently in the business so that the accountant can use that information moving forward. If the business faces a loss, often, the entrepreneur will be able to only pay the personal tax and avoid paying the corporate taxes altogether.
Ultimately, it takes a chartered professional accountants time to learn all the questions they need to ask in order to come up with the right answer for business owner on how they should take salary and dividends out of their business, they should look for an accountant that has a formalized process in order to not only get the information reliably from the client, but how to process the numbers efficiently as well. Remembering that a great accountant, will be able to save them far more in taxes than they will cost them.