Part-time CFO | Should Entrepreneurs Pay Themselves Dividends
The reason why the decision on how business owners should pay themselves, whether it is in salary or in dividends is an extremely important one according to part-time CFO. The reason is because how business owners take money out of their business ends up being the taxes that they end up paying. Itís not so much a question of payment, but actually a question of tax strategy instead. In order to create the most efficient tax strategy possible, entrepreneurs should hire the right professional.
Business owners that try to save themselves money by hiring the least expensive part-time CFO possible, typically end up paying far more in taxes due to an inefficient tax strategy. When business owners have an inefficient tax strategy, they end up paying double or triple whatís a good accountant would cost over the year. Rather than trying to save money on accounting services, entrepreneurs should actually try to save money in the business the hiring a chartered professional accountant thatís going to allow them to save more money in the long run.
If business owners are wondering if they currently have an inefficient tax strategy in this regard, they should take a look at either their tax return or financial statement. What they should be looking for is if they are being paid either 100% in salary or 100% in dividends. This may indicate that not enough thought has gone into the decision on what a business owner should take and how I should take it out of their business. Most efficient tax strategies end up having a combination of the dividends and salary. This could be a sign that business owners should get a second opinion in order to make that determination.
When business owners are deciding who should give them a second opinion on this, the professionals at Spurrell and Associates take a look at this decision differently than most other accounting firms. They have a formalized process on how to get the information from the entrepreneur to lead as much information as possible, and then they have formalized process is devoted to analysing that information. What this allows them to do, is get the information more reliably, and process that information efficiently so that they can get the answers about how to form an efficient tax strategy for the entrepreneur quickly and with a lot of thought into it.
Business owners who are coming to this decision should be prepared to answer several questions not just about themselves and their business with their Part Time CFO, but their spouse as well as their family members, because several factors will go into this decision on whether they should get paid in dividends, salary or what makes is right for them. Once business owners have the right accountant, and are getting paid the most efficient way possible, they can be assured that they are not only getting paid efficiently, their business is benefiting from the efficient tax strategy as well.
The decision on how business owners take money out of their business is actually more of the taxes strategy question than a payment question according to part-time CFO. The reason for this, is because since business owners have to take money out of their business in order to get paid, they have to take it out one of two ways either salary or dividends. How they take it out, through one, the other or a mixture of the two ends up being a tax strategy for the business owner and their business. In efficient tax strategies end up costing entrepreneur thousands of dollars every year so this is an extremely important question.
The decision on how they should pay themselves is a complicated one, and anyone who answers the question quickly or simply may not be understanding the situation or the circumstances deeply enough. In order for part-time CFO to be able to completely understand the situation and have enough knowledge in order to answer that question, theyíve done extensive training at school, and have years of experience finding this answer out for other clients. Any chartered professional accountants that is going to help an entrepreneur with this, only to as several questions about not only the business owner, but about their business as well as their spouse and family as well.
Since itís so complicated, there are several determining factors that a business owner will have to answer such as if they have any other income that they are claiming thatís unrelated to their business. This can impact the decision on how they get paid in this business, for tax reasons and CPP implications for example. Does the business owner have spouse, are they taking money from the business as well, either as a partner or as income splitting opportunities. Part-time CFO says that not only does the spouse need to be factored in, but also if the spouse has of their income unrelated to the business, and how they get paid that way, either salary or dividends.
Does the business owner or their spouse claimed child care expenses, is another question that part time CFO will ask business owners. The reason this question is important, is because childcare expenses are only deductible off of earned. Because of this, if an entrepreneur is cleaning childcare expenses, they may want to take more in salary than in dividends in order to clean those childcare expenses. The same determining factor is used if the business owner is going to be in their business in the next year. Since moving expenses can only be deducted off of salary, during the year that a business owner is moving, they may opt to take more in salary.
The biggest take away is that entrepreneurs should understand that this is not a simple question that has a simple answer, and how they take money out of their business may change along with the circumstances. If the part-time CFO that theyíre using to help them out doesnít take these factors into consideration every single year, they may not be the right professional for an entrepreneur to use.