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Many entrepreneurs donít understand why they have to declare salary or dividends in their business when they take money out of their corporation says part-time CFO. Ultimately, any time a business owner takes money out of their business, they need to declare it as one of two things, dividends or salary. The biggest reason they have to make a decision, is for tax purposes. While it may be place for business owners to be able to take money out of their business tax rate, itís ultimately not allowed, business owners must pay taxes on any money that they take of their business. Deciding if they take it out as salary or dividends can end up having huge tax implications for them, so they must consult an expert before they start taking money out of their business.
In order to understand why thereís tax differences between salary and dividends, business owners need to be able to understand the difference between salary and dividends says part-time CFO. Dividends are not deductible from the income of the corporation, therefore they end up being a direct withdrawal of the prophets of the business. Because of this, they wonít show up on the income statement of the business. Business owners pay corporate tax rates on the dividends that they take from their business. Salary is deductible from the income of the corporation, and therefore they do show up on the income statement of the business. When business owners take salary out of their organization, they will pay personal tax rates on that. Personal tax rate in Alberta top out at 48%, meanwhile small business tax rates are at 11% currently.
Business owners often wonder what the differences between paying themselves salary or dividends, and many assume that since dividends donít show up on the income statement of the business, that thatís what they should do, but the answer to the question is much more complex than that. Part time CFO says that if entrepreneurs are talking to anyone says that they can answer that question simply, or without first asking enough questions to understand both the business owners circumstance and the circumstances of the business, they donít have enough information to answer that question.
Another mistake that business owners often make when it comes to hiring accounting services for their business, is that they try and save money on accounting services says part-time CFO. While this may save the money in their business immediately, you donít understand that it usually ends up costing them significant amounts of money in taxes that they have to pay. If theyíd hired a great accountant from the start, one who informed and efficient tax strategy, they would be able to save enough money in taxes than would have cost the good accountant in the first place.
By saving significant amounts of money for Harry great accountant, part time CFO says that entrepreneurs can increase the cash flow in their business, which can go a long way to helping them stay successful in business.
One of the biggest problems that business owners face is cash flow problems in their business says part-time CFO. Since half of all entrepreneurs fail in business before their fifth year, and 29% of those failed entrepreneurs say the reason why their business failed was because they ran out of money. By being able to positively impact their cash flow through tax strategies, business owners can plan to avoid one of the most common reasons for business failure in Canada today.
The way that business owners can start to save cash flow in their business by utilizing salary and dividends, is by hiring an efficient tax strategist likely part time CFO. Many business owners may be concerned with having to pay a large amount of money up front for great accounting services, but in the end itís worth it in the taxes that they can save. The efficient tax strategy can help entrepreneurs save thousands of dollars in their business every single year, which helps offset the cost of hiring them in the first place.
When an entrepreneur start saving significant amount of taxes, they can then take that money that they are saving and uses in their business to increase cash flow. Since cash flow is one of the biggest reasons why entrepreneurs fail, this can go a long way in helping business owners succeed says part-time CFO.
Business owners need to be mindful to ensure they have the right part time CFO working in their business. Anyone who says that they can figure out how to efficiently save taxes easily, simply, or without doing a lot of information to understand the business as well as the business ownerís individual circumstances, is mistaken. Another warning sign that business owners should look for to ensure they hire the right person, is any accountant that says tha an entrepreneur should pay either hundred percent dividends are hundred percent in salary. Almost all efficient tax strategies utilize a combination of both dividends and salary in their business.
By utilizing the experts and part-time CFO at Spurrell and Associates, business owners can be assured of the great tax planning process. They have created a formalized process that can help clients get out all of the most pertinent information, and is methodical approach is possible. By doing this, business owners can be assured that Spurrell and Associates have all the information that they need. Since they have all of the information from the client, have processes devoted to analysing that information and putting them together in an efficient tax strategy. These processes allow them to create great tax strategies efficiently, and at a fraction of the cost of their competition.
By creating great tax strategies based around their salary or dividends draws business, entrepreneurs can save thousands of dollars a year, that they can then utilize in the cash flow in their business to help avoid running out of business.
