Vancouver CPA | How to Decide When to Incorporate
Many business owners make the decision to not to incorporate by themselves says Vancouver CPA. Without hearing about all of the benefits of incorporating. Which is why they should sit down with an accountant early on in their business. And find out all of the benefits before making that decision.
In fact, there are so many benefits to incorporating. That many business owners, once they find out these facts. Often decide to incorporate. Even though there is a cost associated with it. And that there is increased reporting requirements.
One of the first things that business owners can benefit from. Once they incorporate is protecting their personal assets. If they ever get sued while operating their business. If they are not incorporated. Their personal assets are at risk.
Once they incorporate, they limit their own liability. Because the company is what gets sued instead of the business owner. And while this does not mean that a business owner is 100% protected. Incorporating makes it significantly more difficult to reach the directors of a corporation if they get sued.
If business owners have assets, such as a house where their family lives. They may choose to incorporate their business sooner rather than later. So that they do not put the house that they live in at risk. And in turn, put their family at risk of being homeless. If they get sued.
Another way that business owners can benefit once they incorporate. Is by protecting their tradename. Many business owners decide to not incorporate, but go to corporate registries in order to register their tradename. But it does not offer them the same legal protection over their business name.
Once a business registers the name, that registration acts as a placeholder. But it will not stop anyone else from incorporating under that same tradename. However, once a business owner incorporates. That legally protects the tradename. Which can stop others from using the same name.
Another benefit of incorporation. Is by helping them get a WCB number. In order for many independent contractors to work on a jobsite, they need to have their own WCB number. However, WCB often will not give a number to unincorporated businesses.
Sole proprietors may not be able to work on jobsites because they do not have a WCB number. But once they incorporate, WCB will not have a problem issuing a number to them. So that they are not limited to what jobsites they can work on due to not having a WCB number.
Another great benefit of incorporating. Is that business owners can get hired onto job sites. That refuse to hire sole proprietors to work as independent contractors. In fact, many companies have this policy which is designed to protect their business says Vancouver CPA.
The reason why many companies will refuse to hire sole proprietors. Is because they run the risk of Canada revenue agency deeming those sole proprietors employees of the company. Which will mean the companies will have to pay back all owed payroll remittances to CRA.
This can equal thousands of dollars that the company will then have to pay. So to completely mitigate this risk, they decide not to hire sole proprietors. And only hire contractors that are incorporated.
With all the benefits of incorporating. Business owners should set up an appointment with their Vancouver CPA. To discuss of this would be the best decision for their business.
How often do you hire a Vancouver CPA
One of the reasons why business owners do not want to incorporate is because they do not want to have to hire a Vancouver CPA. There is a lot of reporting requirements once a business incorporates. It requires an accountant to prepare financial statements and year-end documents.
This can be an additional cost that business owners do not want to pay for. Especially as proprietors, they only have to fill out a form. And then file their business taxes alongside their personal taxes. With no additional reporting requirements.
However, business owners also need to keep in mind. That proprietors will get their business taxed at the personal rate that they currently have. Which in British Columbia tops out at fifty-three and a half percent.
But once a business owner incorporates, the tax rate for incorporated businesses is only 11%. Which is a savings of over 42%. If business owners of proprietors are getting taxed at the highest tax rate.
And while many business owners understand that there is a significant tax savings. They think that it is only going to help them save money, once they are making about half a million dollars in business. But this is not the case says Vancouver CPA.
A quick calculation shows that once business owners are building fifty thousand dollars in their business. They will save money by incorporating, and paying the lower tax rates. Even when taking into consideration the additional accounting fees that they will get from their Vancouver CPA.
Therefore, business owners should incorporate before they get the fifty thousand dollars threshold. So that they do not accidentally go over that amount halfway through their year. And end up paying significantly more taxes then they need to. If they had simply incorporated in the first place.
Another benefit of incorporating. Is that business owners are not required to pay both the employee and the employer contribution of CPP. And whether they are the only employees in their business. Or even if they have one or two. This can be a huge tax savings as well.
Many business owners may not realize until the end of the year. That they must pay the employee contribution of CPP as a sole proprietor. Which can equal fifty-two hundred dollars per employee including the business owner themselves.
This can be a significant amount of money that they owe the government at the end of the year. That they are not prepared to pay. Which can end up with late fees and penalties. If they are unable to pay that additional five thousand dollars per employee at the end of the year.
However, business owners can incorporate, and not have this surprise at the end of the year. Which is just one more reason why there are advantages to incorporating a business.
Business owners want more information about the benefits of incorporation. They should set up a free consultation with their Vancouver CPA, and find out what incorporation means for their specific business. And how they can get started.