Vancouver CPA | Advantages of Incorporation
There are many things that business owners should do when they first start their business according to Vancouver CPA. And one of those is incorporating their business. However, many business owners avoid incorporating their business when they are new, partially because they do not understand all of the benefits.
While many business owners know that incorporating can help them reduce their tax bills of the end of the year. They also believe mistake and they, that they need to be running an extremely large company in order to benefit from that lower tax rate.
And therefore, think that it is a great way for them to save money early on in their business. And wait to incorporate, until they are making significantly more money in their business. However, that can end up backfiring on a business owner.
Because they can be paying significantly more taxes than they need to. And rather than using that money in their business. It could create a situation where business owner eventually runs out of money. Because they are paying more taxes than they should.
In fact, that is the second most common reason why Canadian businesses fail says Vancouver CPA. Is because they run out of money, and are forced to close the doors to their business.
As a sole proprietor, business owners will file their business taxes along with their personal taxes. And that means they will have their business income taxed at the same personal tax rate that they have for their personal taxes.
And depending on what tax bracket they are in, Vancouver CPA says that can be as high as fifty-three point 5%. Which is the highest personal tax rate in British Columbia. On the other hand, corporations enjoy an extremely low 11% tax rate.
Which means the moment a small business incorporates, they can save up to forty-three point 5% in taxes. That they can then keep in their business.
Whether they use this money to purchase assets they need in order to grow, pay bills. Or even higher staff to help them run their business. Or put it towards increasing their advertising budget.
While these things can help their business grow, and help keep the money in their business. Rather than giving extra money government that they do not need to pay.
However, this is not the only place that they can save money in. They can also save money by not having to pay the employee and employer contribution of CPP that sole proprietors must pay.
This can equal over five thousand dollars a year in additional taxes that they do not have to spend, once they incorporate. So not only can business owners save up to or over 42% in a tax rates. They also can save over five thousand dollars a year as well.
Therefore, business owners even when they are very small. Should contact their Vancouver CPA office. In order to find out the benefits of incorporation. So that they can make the decision that is right for them.
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While some business owners think that the only advantages of incorporation are taxes says Vancouver CPA. This is not accurate, there are many benefits to incorporation. That can benefit businesses of all sizes.
One of the most common and well-known benefits of incorporation. Is that it limits the liability of a business owner. By putting that liability on the company itself as an entity.
Even if business owners are running low risk businesses such as design firms or web design companies. They will have an inherent risk associated with conducting their business.
And if a business owner gets sued, if they are a sole proprietor. They are the ones that are white get sued personally. Which could put their personal assets at risk. Such as a home that they are living in, or the vehicles that they are driving.
However, the moment a business owner incorporates, that company becomes liable instead of the business owner. Which means if they get sued, it is the company that get sued. Which will protect business owners personal assets.
Another benefit of incorporation, is that it can help protect the business is tradename as well. While many business owners make the assumption that the way that they legally protected that name. Is by registering it a corporate registries office.
However, while that acts as a placeholder. It does not legally protect the name. And cannot stop someone else from incorporating their own business using that name. Despite the fact that a business owner might be using it for several years prior.
Therefore, business owners can protect their name, and the grant that they are building. By incorporating early on says Vancouver CPA. And ensure that nobody else will be able to use their name for any other use.
Another reason why business owners should incorporate, is because it will allow them to get a WCB number. Which they will need in order to work as an independent contractor on many job sites.
This is incredibly important if they do work as a contractor. And while Worker’s Compensation often says that the reason why they will not give a sole proprietor a WCB number. Is because they will typically be working under a prime contractor.
Prime contractors typically will not extend their WCB coverage to a subcontractor. And the reason why, is because if they have a claim, is their own premiums that will increase. So they typically will not extend their coverage to anyone else.
Therefore, if business owners incorporate, they will be able to take more jobs. Because they will be able to get access to job sites because they have their own WCB number. And when businesses are starting out, being able to take as many jobs as possible is incredibly important to their success.
Since there are so many benefits of incorporation. Especially benefits outside of a tax savings. Business owners should get as much information on a corporation as possible.
And if they still have questions, they can set up a free consultation with their Vancouver CPA. An entrepreneur can ask their specific questions about their own circumstances.