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Many entrepreneurs donít fully understand that how they decide to take money out of their business actually affects the cash flow in their business says part-time CFO. The reason for this, is because even though business owners have to take money out of their business somehow, how they decide to do it can affect taxes in their business. And efficient tax strategy can help a business owner save thousands of dollars every year in taxes. If they are able to achieve this, they can use the money that they save on taxes to help increase the cash flow in their business. Since half of all entrepreneurs in Canada end up going out of business within five years, 29% of those businesses say that the reason why their business failed was because they ran out of money. Efficient tax strategy can go on awful long way to helping business owners avoid this fate.
The biggest problem with business owners decision on how they take money out of their corporation is the fact that it is an extremely complex issue. If anyone tells business owners how they should take money out of their corporation, without either doing a deep dive to figure out the business owners circumstance, and the circumstances of the business, chances are they didnít understand the situation deep enough to be able to offer up that advice says part time CFO.
Some people claim that salary, dividends and corporate tax rates are integrated, business owners should understand that while this is in theory correct, there are actually so many variables that must be taken into consideration that this formula doesnít actually work. The theory behind it is that since dividends are nondeductible says part-time CFO, an entrepreneur take personal taxes and corporate taxes on that. If you at both of those tax rates together, it will equal the amount on the salary. Again, this is a great theory, but business owners should understand that this doesnít actually work because of the massive variables that must be considered actually making this decision. Again, if it can be answered simplistically, itís usually not the right answer.
Business owners should also understand the difference between salary and dividends, so that they can understand why they need to come up with the proper mix between the two in order for tax savings. While salary is deducted from the income of the business, and shows up on the income statements of the business, part time CFO says dividends are not deductible from income because they are a direct withdrawal of the prophets of the business. Because both of these have different tax implications, the decision on how much salary and how many dividends to draw from the corporation is the decision in order to help save taxes.
Business owners should be working to ensure that they hire a great part-time CFO that can help them with this decision, because a great tax professional can help save thousands of dollars, that they can then use to increase the cash flow in their business and avoid the reason why 29% failed businesses failed.
One of the most complicated decisions that a business owner will have to determine in their corporation says part-time CFO, is how to take money out of their business efficiently. And efficient tax strategy can help save the business owner and their family thousands of dollars a year in saved taxes. However, if business owners hire and inefficient tax professional, who does not understand the situation, they can end up paying thousands more in lost taxes than hiring a great part time CFO would from the start.
This is extremely important to businesses, because saving money can directly impact businesses. 29% of all entrepreneurs who failed in business, said that the reason why they failed was because they ran out of money. Coming up with an efficient tax strategy can goal an extremely long way to helping business owners avoid this circumstance.
Business owners can look for warning signs that they have and inefficient tax strategy involves if they look at their financial statements and discovered that they are getting paid either in hundred percent dividends or 100% in salary. The reason this is a warning sign says part time CFO, is because not enough thought has typically gone into this, because most efficient tax strategies for corporations utilize a combination of taking income through dividends and salary.
There are so many variables that business owners are going to need to divulge to their part-time CFO when coming to this decision. Variables such as does the business owner have other income unrelated to their business, and how did they get paid from that is it salary or dividends? Is an entrepreneur have a spouse, is that spouse have other income and if so, how did they get paid? What they like to think about income splitting opportunities for the business owner, and spouse, or they have children that they want to utilize for income splitting opportunities? If the business owner or their spouse have childcare expenses, who claims them is going to factor into his paid salary and dividends. If either of them are going through a divorce or separation, dividends versus salary can factor in greatly. These are just some of the variables that the part time CFO will need to consider in order to make this decision.
The hiring the right tax professional for them, business owners will be able to save thousands of dollars every year on saved taxes. When they do that, they can use the money that they save to put back into their bank account and increase their cash flow. Simply by increasing the cash flow in their business, entrepreneurs can vastly improve their chances of succeeding because of be less likely to run out of money in their business. By deciding how to take money out of their business, business owners can impact the health of their business.
When entrepreneurs are making the decision about how they are going to take money out of their corporation, they may not realize that it is more crucial decision than they realize says part-time CFO. The reason why itís so crucial is because rather than being an issue about how much money the business owner makes, itís actually tax strategy that can significantly impact not only a business owner, but their corporation as well. Efficient tax strategies can save business owners thousands of dollars, and inefficient tax strategies can cost the business far more than money. Since half of all entrepreneurs end up failing within five years, 29% of those failed entrepreneurs say that the reason why they failed was because they ran out of money in their business. Efficient tax strategies can help business owners succeed are so many went able to.
One of the first things that business owners need to understand when it comes to paying themselves, is that there is a difference between taking salary and taking dividends. While an efficient tax strategy usually has a combination of both, but that combination is depends on several factors. Salary is the amount of money that is deductible from the income of the corporation, and personal taxes are paid on. Dividends are the income the business owner takes from the business that is not deductible from the income statement of the business, because it is a direct withdrawal of the prophets of the business. It will show up on the income statement of the business, and corporate taxes are paid on it.
Many accountants believe that salary, dividend and corporate tax rates are integrated, but thatís far too simplistic view of it says part time CFO. The theory is that since dividends are nondeductible, an entrepreneur pays both personal and corporate taxes on it, if they had put together it should equal the amount on the business owners salary. Business owners should be wary of anyone that has a very simplistic you of how they should pay themselves, because if itís too simple, is probably not taking into consideration all of the different variables of the business ownerís and their corporations circumstances
One warning sign that a business owner should look for if they are utilizing efficient tax strategies, is if they look at their financial statement and discovered that they are getting paid either hundred percent in dividends or salary. The most efficient tax strategies have a combination of being paid in both dividends and salaries, based on the individual circumstances of the entrepreneur.
Part-time CFO says that in order to make the right decision, they need to go to school for four years, and article for three more years and then have more experience under their belts in order to completely understand the issue, and be able to ask the business owner all of the right questions in order to come up with the right makes for them that can help them save thousands of dollars in taxes and therefore increase their businesses chance of success..
