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E-Myth – “Why most small businesses don’t work & what to do about it”

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Chartered Professional Accountants E Myth

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Part-time CFO | Positively Impacting Business Is Using Dividends

It’s extremely important that entrepreneurs utilize great accounting services as early in their business as possible says part-time CFO. The reason why thatís important, is because hiring a great accountant from the beginning, can help the business owner save thousands of dollars in money in taxes that they havenít had to pay. The reason for this, is because great accountant is going to be able to help a business owner plan efficient tax strategies for their business early on in their business. One of the most efficient tax strategies that business owners are going to utilize is how they pay themselves in their business.

The difference between salary and dividends is essentially how it is taken into account in the corporation. Salary is deductible from the income of the corporation, so it shows up on the income statements of the business. Part-time CFO says that dividends are not deductible from the income of the corporation, because they are attract withdrawal of the prophets. Therefore it will not show up on the income statements of the business. Because of these differences, salary versus to business and being taxed at different rates. How an entrepreneur decides to get paid in the business, usually ends up being a combination of both dividends and salary.

How business owner comes to the conclusion of how much and salary and how much and dividends they take over their business, is usually up to the part-time CFO that they hire to help with their accounting. This is the single most common question that chartered professional accountants get, business owners should understand that if anyone answers this question quickly, they probably donít understand the situation as well as they should. This is a complex issue that needs a large amount of understanding on behalf of the accountant to clearly understand how to save the most amount of taxes.

Entrepreneurs who have tried to save money on accounting services in the beginning, may discover that they are paying far more in taxes than they would in a great accountant from the very beginning. Because this can be significantly impact will on the business, in terms of how much money a business can save in taxes this can impact a business by helping increase cash flow and can help entrepreneurs accumulate wealth for the future. If business owners want to double check their own finances to see if they are at risk for having an inefficient tax strategy, all they need to do is look at their financial statements and see if they are being paid either hundred percent in dividends or hundred percent salary. If they are, thereís a very good chance that not enough that process went into their strategy.

By hiring a great part-time CFO, who can completely understand the situation and help entrepreneurs save thousands of dollars a year in taxes, business owners can impact their business, impact their own life, and ensure that they have got a viable business for years to come.

The most important decisions that a business owner may make in their business, is how they should take money out of their business says part-time CFO. The reason why this is such a significant issue, is because this essentially becomes tax decision. A business owner is able to take money out of their business only in two ways, either through salary or dividends. The difference between the two is how it looks on the balance sheets of the business, salary having more personal tax deducted from it, dividends having more corporate tax.

Part-time CFO who is an expert in figuring out efficient strategies for business will be able to help entrepreneurs figure out which breakouts salary plus dividends a business owner needs to take in order to minimize tax payments throughout the life of their business. Many people claim that salary, dividend and corporate tax rates are all integrated, and they ask their accountant if this is correct. While this strategy is valid in theory, it doesnít actually work in practice because there are so many more variables to consider. The way it works in theory is a business depends are not deductible, an entrepreneur needs to pay taxes both personal and corporate if they add those tax rates together, it should amount to itís on the salary. The variables that are involved in actually figuring out this equation, are so much more complicated than that. Business owners should understand that anyone who says that they can answer that question quickly, or simply without learning about the business owner and their corporation, should give a clue to a business owner that they are supporting the time to properly understand this subject matter.

Another wording was in the business owner should heed that indicates if the person that help to make this decision is in the past is by looking at their financial statements or their last years tax returns to see if they either paid hundred percent in dividends or hundred percent and salary. If the business owner is paying hundred percent in either, that may be a great indication that not enough thought has gone into this tax strategy. The reason for that is because the most efficient tax strategies usually have a combination of dividends plus a salary. The reason why business owners may have non-expert advice on this, is because they may have tried to save on accounting fees when they first opened their business which resulted in getting poor quality accounting services says part-time CFO. Business owners should understand that if they try to save money on accounting fees, they can usually end up paying far more in taxes. A better bet would be for an entrepreneur to hire a great accountant from the very first day, so that they can save a significant amount of taxes from the beginning which can impact their business to more positively than a lower accounting bill.