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The first question that business owners need to answer is why do they have to declare salary or dividends at all? Part-time CFO says that when money is taken out of the corporation, it needs to be done one of two ways, either salary or dividends. While many business owners want to continue taking money out of their business tax free forever, they need to eventually make the decision if they declare salary or dividends or what makes of the two they need to implement. Theyíre going to be taking money out of the company, so they need to figure out what makes they should do. Ultimately, if business owners take out either hundred percent salary 100% dividends, they are not having enough thought into the entire process.
The second question that business owners should understand in answering this question, is what is the difference between the two? Part time CFO says salary is the deductible amount from income, whereas dividends are not deductible. Income they are a direct withdrawal of the process of the business. Dividends will not show up on the income statement of the business.
The next question that business owners need to answer is our salary or dividends and corporate taxes integrated? Part time CFO says that while in the theory that is the case, in reality there are so many different variables it doesnít really work that way. The theory behind that is that since dividends are not deductible, a business owner pays corporate as well as personal tax. If you add up the corporate and personal tax rates together on the dividends, it is supposed to will the amount of taxes on the salary. However as previously discussed while it works in theory, it doesnít really work in reality because the entire situation is much more complicated than all of that.
So in order for businesses to understand if they should be paying themselves salary or dividends, they should make an appointment with their part-time CFO, in order to let them understand deeply their business as well as their personal circumstance, and come up with the specific answer for that business owner.
One of the most common questions that business owners have for their part-time CFO, is should they declare salary or dividends. While this question may seem easy on the surface, is very complicated. It is also one of the most common questions that business owners have their accountants, and any accountants that answers the question very quickly clearly doesnít understand the subject properly. It takes a chartered professional accountant for years of study and three years of articling in order to understand this subject matter. At Spurrell and Associates, they have a formalized process that help the chartered professional accountants their glean as much information from their clients as possible, and then process the numbers efficiently so that they can answer that question properly and come up with great tax strategies.
Business owners should consider some of the following questions to help them communicate to their part-time CFO the best way they should get paid. Something that business owners should consider is not an inefficient payment strategy can significantly impact the business owner and their family. By significantly impact, it is meant in terms of finances. Itís not unusual for business owners to find out that by trying to save a significant amounts on their accountant costs, they were actually utilizing an extremely inefficient tax strategy, which ended up costing their business thousands of dollars a month, or at least double or triple what the price of a good accountant would be. Business owners should know that if they are trying to save money on accounting services, that poor accountant services cost a business far more on increased taxes than they would and accounting fees. When they are considering whether they should pay salary or dividends, they should get the best accountant they can, and they will save significant amounts on their taxes that can help them pay for their good accountant.
Business owners can understand some warning signs of inefficient payment strategies says part time CFO. If they look at the financial statement or the tax return, and it shows that the owners being paid either hundred percent in dividends or hundred percent in salary, that means that a business owner most likely has an inefficient strategy. This should be a warning sign to a business owner that the accountant that came up with that strategy has not put enough thought into it.
Business owners then need to understand that a bunch of variables is going to go into affecting the decision to pay themselves using dividends or salary, other variables that will affect this decision include income splitting, other income, childcare expenses, divorce, other families corporations, moving expenses to name a few. Thereís a lot of information, and many business owners hire the correct part-time CFO services to help them make the decision, they will this decision that they possibly can. Itís not going to be an easy decision, and itís a complicated question, but by hiring the right business, business owners can have an efficient tax strategy that can help them save significant amounts of money in their business.
