Vancouver CPA | Deciding to Incorporate a Business
Although many business owners hold off on incorporating their business says Vancouver CPA. Because they think it is an expense that they do not need in their business yet. Business owners need to understand the benefits of incorporating so that they can make the right decision.
In fact, many business owners are not even sure why they need to incorporate their business in the first place. Thinking that it is only something that they need to do when they have grown their business significantly. And that they are making a million dollars in profit each year. But this is not the case.
Any business can make the decision to incorporate at any time. However, business owners need to understand. That once they incorporate. They will have specific reporting requirements. And will need to report to Canada revenue agency on a regular basis.
And while many business owners are not sure why they want to incorporate, and have more accounting responsibilities and reporting requirements. But there are a lot of benefits of incorporating. That can be very important to sole proprietors.
One thing that many business owners may not realize until it is too late. That if they are sole proprietors and they have employees. That they must pay for the employee and the employer contribution of CPP. Even if they are the only employee in their business. They must pay this additional contribution.
Which can equal up to fifty-two hundred dollars per employee each year. Even if the business owner is the only employee in their business. This can be an over five thousand dollar expenses that they were not prepared for. That can be difficult or impossible to pay to Canada revenue agency immediately.
Therefore, in addition to getting charged with an additional five thousand dollars in a year. It will also incur penalties and late charges. When they are unable to pay their CPP remittance on time. However, they can avoid this once they incorporate their business.
Not only can they save that money, but they can also protect their tradename once they incorporate. Even if people have gone to registries in order to register their tradename. Vancouver CPA says this does not legally protected that name. And anyone else can incorporate using it.
Therefore, in order to protect the name that a business owner has worked so hard to create a reputation for. They should incorporate, because then their name is legally protected. And nobody else can incorporate using that same name.
And finally, a benefit of incorporating is that it gives business owners limited liability. Conducting a business has inherent risks. Even in an extremely low risk business. And if a business owner gets sued. If they are incorporated, it is the corporation that shoulders that liability.
Which means a business owner can protect their assets such as a family home. And if they have family that living in that house. If they are not incorporated, they are at risk of losing that family home and becoming homeless. If they get sued while being a sole proprietor.
In order to discuss these and other benefits. Business owners should set up an appointment with their Vancouver CPA. And find out other benefits of incorporation. And if it is the right time to do so for their business.
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Many business owners decide not to incorporate their business right away says Vancouver CPA. Because they do not want to have the added expense of accounting requirements, if they are not sure their business is going to be successful or not.
However, by doing this, they are not realizing all of the benefits that they can have of incorporating. And that they can often save enough money through incorporating. That can make it much easier to run their business with that money that they are no longer spending on additional taxes.
One thing that business owners should keep in mind. Is that the highest personal tax rate in BC is currently fifty-three and a half percent. And business owners of proprietorships will get their business taxed at the personal tax rate.
Therefore, it is very likely that they can be paying over 50% taxes on their business income. However, once they incorporate that tax rate drops to 11%. Which can be a significant savings for any business owners. Particularly small businesses.
Therefore, by incorporating their business, they can save a significant amount of money on taxes. That the then the use on running their business, buying assets, and spending it on marketing and advertising. To help grow their company even larger than ever before.
In fact, Vancouver CPA says that business owners only have to be making about fifty thousand dollars in their business every year. In order to make it more cost-effective to incorporate, then it is to operate a sole proprietorship. Therefore, business owners can save more money by incorporating.
And while there are additional accounting requirements. And more reporting to Canada revenue agency then if they were a sole proprietor. Even with that additional accounting fees from their Vancouver CPA. They will save more money in taxes than they will spend on accounting fees.
And while incorporating is often financial decision for many small business owners. There are benefits to incorporating over and above monetary benefits. Such as many banks will refuse to issue loans to unincorporated businesses. So if a business owner will ever want to borrow money from a bank.
They should incorporate their business, so that when the need arises. They do not have to worry about then incorporating their business. And creating all of the financial statements that their bank will need to decide on whether they will loan them the money or not.
They can incorporate early on, and then when they need to borrow money whether it is to buy a building. If they want to do leaseholder improvements on their office space, or even by assets. They will be held back by not being able to qualify for loans because they are not yet incorporated.
To discuss all of the benefits of incorporation. Businesses should set up an appointment with their Vancouver CPA, and find out everything that they need to know. In order to make this decision for their business.