Vancouver CPA | Factors to Consider Before Incorporating
There are many things that business owners are doing when they first start a business says Vancouver CPA. And often, they are trying to keep their costs as low as possible. Especially since business owners have very little time or money when they first start their business.
And one thing that they think that is going to save them a lot of money. Is avoiding incorporating early on in their business. Especially because many business owners make the assumption. That until they are making a lot of money every year in their business. There is no benefit to incorporating in their business.
In addition to that, many business owners understand that because there are additional reporting requirements once they incorporate. Requiring them to do a corporate year-end in their business. As well as do a lot more accounting.
Such as preparing financial statements such as balance sheets and income statements. Reporting to Canada revenue agency. And creating T4 and T5 slips at the end of the year. This additional accounting requirements. Can cost a lot of money once they hire a Vancouver CPA.
And as sole proprietors, business owners simply fill out an additional form at the end of the year. And file their business taxes alongside their personal taxes. And because it seems like it is a lower expense, many business owners think that incorporating is simply an added expense to their business. That they do not need to yet.
However, business owners need to understand that while there is an additional cost to incorporating. It can also save them a significant amount of money. Because they will have a much lower tax rate once they incorporate their business.
Since sole proprietors file their business taxes alongside their personal taxes. Their business income gets taxed at what ever their current personal tax rate is. In British Columbia, the highest personal tax rate is currently at fifty-three and a half percent.
Which means that business owners can potentially have their business taxed at more than 50%. This is especially high when entrepreneurs consider that the tax rate for businesses once they incorporate is only 11%. Which can be more than a 42% savings in taxes.
And while business owners often understand that incorporating can help them save taxes. They also are under the assumption that they need to be making close to a million dollars in order to benefit from incorporating. And enjoying a lower tax rate.
However, Vancouver CPA did the calculation. And found that businesses that are extremely small, and are only invoicing fifty thousand dollars a year in their business. Can benefit from incorporating. By saving more money in taxes. Then they would pay in additional accounting fees.
Since incorporating can be such a financial savings to most businesses. Entrepreneurs who are not yet incorporated should sit down with their accountant. In order to find out all of the facts about incorporating. And as it relates to their own business to help them make the right decision.
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While many people think of incorporating as a financial decision in their business says Vancouver CPA. There are more benefits to incorporating then simply monetary. And business owners should understand all of the benefits before deciding that it is not the right time to operate their business.
One of the first benefits of incorporating a business that does not include finances. Is that incorporating protects a business owner and their personal assets. This is because incorporating gives business owners limited liability. Which means if they get sued, it is their company that shoulders that burden and not themselves personally.
As a sole proprietor however even in a low risk business, entrepreneurs run the risk of being sued. And if they are not incorporated. It is the business owner personally that get sued. And all of their assets are at risk if they are sued successfully.
Therefore, many business owners who have assets such as a family home and where their family lives. Decide to incorporate. So that if they do get sued, it will make it much more difficult to lose their assets. So by incorporating, they can protect their assets, and particularly the home where their family lives.
Another benefit of incorporating is protecting the companies tradename. Vancouver CPA says many business owners assume that once they register their tradename it legally protects it. But this is not the case. That registration will not stop someone else from incorporating using that name.
This is why many business owners choose to incorporate early on in their business. So that they know they are legally protecting the name. That they are spending all of their time and energy building a good reputation for in their business.
Another benefit of incorporating. Is it helping business owners get a WCB number. Because they may not be eligible to receive a number if they are sole proprietors. Vancouver CPA says that WCB often refuses to give sole proprietors WCB numbers, because they should be covered under the prime contractor.
However, many prime contractors refused to extend their WCB coverage to subcontractors. Because if they have a claim, it will drive the prime contractors premiums up. This may cause them to not be able to take many jobs. Because they are unable to work on the jobsite without a WCB number.
In fact, some companies just simply refuse to hire sole proprietors as contractors or subcontractors in their business. Because sole proprietors run the risk of being deemed employees by Canada revenue agency. When this is the case, the companies that hire those sole proprietors need to pay all backdated payroll remittances.
And that can end up with businesses paying thousands of additional dollars to Canada revenue agency. In addition to late fees, and penalties for not paying that money initially. And so to mitigate this risk altogether. Many companies will refuse to hire unincorporated businesses.
Therefore, by incorporating, businesses can protect their personal assets, protect their name. And have access to more jobs than ever before as an unincorporated contractor. If business owners want more information on the benefits of incorporation. They should set up an appointment with their Vancouver CPA.