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Entrepreneurs should understand that the decision on how very are going to pay themselves in their business is not a question of income, but a question of tax strategies says part-time CFO. Itís extremely important for business owners to make the right decision on how to take money out of their business, because if done so efficiently, business owners can pay significantly less money in taxes. Itís not uncommon for businesses to save thousands of dollars every year with a great accountant.
The difference between salary and dividends factors into this decision greatly. Salary is the amount of money that a business owner takes out of their business that is deductible from the businesses income. It shows up on the income statement of the business, and business owners pay personal taxes on it. Dividends are not deductible from the income of the business because it is a direct withdrawal of the prophets and will not show up on the income statements of the business. A business owner pays corporate taxes on that amount.
The most efficient tax strategy will end up with the entrepreneur paying a mix of the two, based on their personal circumstances and the circumstances of the business.If an entrepreneur is able to save thousands of dollars in taxes, they can ensure that that money that they save goes towards increasing the cash flow in their business. Since 29% of all failed entrepreneurs say that the reason why they failed was because they ran out of money, this can be significant in helping business owners avoid running out of money in their own business, which caused so many businesses before them to fail.
Some of the variables that business owners should be asked about when choosing their part-time CFO include if they have their unrelated income, and if so how does the business owner get that money, is it a salary or dividends? Do they have a significant other, and if so, they think income from the business, and to they have other unrelated income as well? How they get the money either through salary or dividends also factors in greatly says part time CFO.
Other variables that will need to be considered include childcare expenses, divorce or separation agreements, moving expenses and even future losses in the corporation can factor into this decision. A great part time CFO will come up with a great mix of salary in dividends for the business owner based on their circumstances. This doesnít mean that thatís what the eggs will always remain at, since circumstances can change quickly, business owners need to understand that they may have to change what their mix is based on the circumstances.
Hiring the right part-time CFO for their business, entrepreneurs can ensure that they are utilizing an efficient payment strategy, that can help save them thousands of dollars in taxes. Stating that amount of money, will help entrepreneurs stay cash flow positive in their business, and avoid the second most common reason why businesses in Canada fail.
One of the most common questions that part-time CFO gets asked is should entrepreneurs pay themselves in salary or dividends? Entrepreneurs need to understand that there is no simple answer to this question. Itís a complex issue that factors in several variables including the business owners circumstances, the circumstances of their family and their corporation. If done properly, entrepreneurs can save thousands of dollars in taxes every year, and that can help businesses increase the cash flow in their business. 29% of all failed businesses say that running out of money was the reason that their business failed, so entrepreneurs who can take steps to avoid cash flow problems in their business, can increase their chances of success.
The reason why the decision on how to pay themselves becomes a tax strategy is because the difference between how businesses can take money out of their corporation. They can either take money out of the corporation through salary or dividends. Dividends is a direct withdrawal of the prophets of the corporation, and business owners who take money out this way wonít have that money show up on the income statements of the business. Itís not deductible from income, and business owners to pay corporate taxes on this amount. Salary on the other hand is deductible from income, business owners who take money out this way will have it show up on the income statements of the business, and pay personal taxes on it. Since the personal tax rate in Alberta tops out at 48%, and the small business tax rate is currently at 11%, business owners should be able to easily see how affecting the way they take money out of their business can be very impactful.
When business owners are hiring the right part-time CFO to work with, itís important that they donít try to save money on accounting services. The reason for that is because if they donít hire the right professional, they can end up paying far more on increase taxes than they would and accounting fees. They should work with the best accountant they can find in order to help save the most amount of taxes that they can.
The business professionals at Spurrell and Associates have developed a formalized process in order to help make that determination. Because if created systems, they are able to get as much information from their clients as possible, as efficiently as possible as well. Didnít have developed processes devoted to processing the information efficiently, but the end result being efficient tax strategies at a great cost compared to other part time CFOís who are manually calculating the information.
By saving significant amounts of money in taxes says part-time CFO, business owners can positively impact the cash flow their business and avoid the reason why 29% of entrepreneurs fail, which can help them become more successful, and more viable than ever before.
