Vancouver CPA | Incorporate Early in Business
Some business owners start their business, thinking that they are eventually going to incorporate says Vancouver CPA. However, there are many reasons why business owners should incorporate sooner, rather than later.
Many business owners make the assumption that in order to benefit from a reduced tax rate. From incorporating their business, they have to be making a lot of money in their business in the first place.
However, the threshold is actually very low. At what point it becomes financially beneficial for business owner to incorporate. Since sole proprietors will have their business income taxed a personal tax rate.
Almost always, sole proprietors will be paying more in taxes on their business income. Then businesses who have incorporated already. Because the tax rate for corporations is 11%.
And while the personal tax rate in Columbia tops out at fifty-three and a half percent. Even if people who are not close to the highest personal tax rate. Still will be paying significantly more taxes than they should if they are sole proprietors.
The money that they spend on additional taxes. Could be spent in their business, hiring new staff, paying bills or purchasing assets. Or they could even use the money to increase their sales and marketing strategies.
And by doing that, will be successful in finding more customers. In helping their business overcome one of the most common obstacles that businesses face. Which is not be able to find enough customers to remain viable.
And while many business owners are aware that once they incorporate, they will need to hire a Vancouver CPA to help with their accounting requirements, as well as reporting requirements.
However, even with paying additional accounting fees. Business owners will still be more ahead financially. To pay a reduced tax rate. Even if it results in more accounting bills.
In fact, businesses only have to be invoicing about fifty thousand dollars a year. In order to make incorporation a financially prudent decision.
And while there are many financial benefits of incorporation. Business owners also should understand that there are other benefits of incorporation. Such as protecting their personal assets. Because their corporation limits the business owner’s liability.
And incorporating can help protect a business is tradename legally. Because even though they had registered their tradename. That does not legally protected. And other people can incorporate using that same name.
So the sooner business owners incorporate. They are protecting the name that they are building in their business. The sooner they understand this, the sooner they can protect their name.
Incorporating can also help them qualify for bank loans. Because financial institutions will not loan money to sole proprietors. So if any business thinks that they may ever need to apply for a loan. They should incorporate their business sooner rather than later.
However, businesses may not always be in agreement. Or think that they have some special circumstances that will cause incorporation to not be the right decision. And for these businesses, they should contact their Vancouver CPA, to answer all of their specific questions.
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When business owners start off their small business, and Cooper CPA says they know that they must save as much money as possible. Especially early on in their business. However, they should not save money by deciding to incorporate their business later.
Although there is a cost associated not only with incorporating. But a cost associated with increased accounting bills because of the monthly reporting requirements and creation of financial statements. Such as balance sheets and income statements.
But also the corporate year-end will cost more. Then if they were a proprietor, because that just requires an additional form being filled out. And filing their business taxes alongside their personal taxes.
But even though there are these additional costs associated with incorporation. Vancouver CPA still recommends that small businesses incorporate their business sooner rather than later. The reason why, is because there are many benefits that businesses can enjoy once they incorporate.
One of the first ways that businesses can benefit. Is when they are proprietor, they may not realize that they have to pay both the employee and the employer contribution of CPP. Which can end up being a surprise at the end of the year. When they get an assessment back from Canada revenue agency.
This can equal on additional tax payment of fifty-two hundred dollars. Which can be difficult or impossible fur small business to come up with last minute. And as long as they are a proprietor, they will have to pay for both the CPP employee and employer contributions.
However, once a business owner incorporates their business. They no longer have this requirement. And can save a significant amount of money every single year.
Another way that businesses can benefit from incorporating says Vancouver CPA. Is by helping them get a WCB number. If businesses are working as contractors, either a prime contractor or a subcontractor. Most companies will require contractors to have their own WCB coverage.
Unfortunately, WCB will not issue a WCB number two sole proprietors. Under the assumption that sole proprietors will only be subcontractors. And that subcontractors can get their double CV coverage from the prime contractor.
However, many prime contractors will not extend their WCB coverage to subcontractors. Because if there is a claim, it is their own premiums that will increase. So to avoid that from happening, they will not let anyone else use their WCB number.
Although, once a business incorporates, WCB will more than happy to issue them a WCB number. Which will allow business owners to be able to take a wider variety of jobs. Because they will not have to turn down work, due to not having WCB coverage.
And the same is also true when it comes to simply being hired as a sole proprietor. Because some companies simply refuse to hire sole proprietors. Because they would be at risk of having those workers be considered their employees by Canada revenue agency.
Therefore, they have a policy of only working with incorporated contractors. Which is another reason why business owners will be able to accept a wider variety of jobs. Once they incorporate their business. Which is why Vancouver CPA recommends that all businesses, including small ones incorporate.