Vancouver CPA | the Benefits of Incorporation
While many business owners assume that incorporating will help them save money on taxes according to Vancouver CPA. And while this is true, there are also many other benefits of incorporation. That business owners can enjoy.
In fact, these benefits can be so helpful for business owners. That they should not wait until they have groaned certain size before incorporating. Because of how it can help them in their business.
When reason why Vancouver CPA recommends that even small businesses incorporate sooner rather than later. Is because it will help them get a WCB number. Reason why that is beneficial, is because that is often what is needed for independent contractors to walk onto the jobsite.
Many sole proprietors apply for a WCB number and get rejected. Because Worker’s Compensation says that they should be able to get coverage underneath the prime contractor. However, this does not typically work out. Because the prime contractor will not want to extend their WCB coverage.
Because if there is a claim, it is their own premiums that will increase. Therefore, they typically will keep their do very been number for themselves. Which means so proprietors may have a difficult time working on many job sites. Because they do not have their own WCB coverage.
However, once they incorporate, Worker’s Compensation will have no problem giving them a WCB number. They can use to get hired on any jobsite they want. And act as their own prime contractor, or a subcontractor if they wish.
Another benefit of incorporating. Will simply be that they will be able to accept work on a wider variety of job site. Because some companies simply refuse to hire sole proprietors as independent contractors.
The reason why, is because those companies when the risk of having Canada revenue agency team those contractors as employees of the business.
And when this is the case, the company will be responsible for paying Canada revenue agency all payroll remittances that would have been do. If they hired them as an employee in the first place.
To avoid having this risk, many companies simply have a policy period of refusing to hire independent contractors that are not incorporated.
Therefore, business owners will be able to get a wider variety of jobs, and not have to turn work away. If they are not incorporated. Because they will be able to get a WCB number. As well as be eligible to work on an extremely wide variety of job sites.
Especially when businesses are new, Vancouver CPA says they do not have the luxury of being able to refuse work. So making themselves as available to work as possible. Is an extremely important way that business owners can grow their business.
While these are just some of the benefits of incorporation. If entrepreneurs want more information about how incorporation can affect their business. They can set up a free consultation with their Vancouver CPA, in order to ask their questions.
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While it is true that incorporating can help business owners save taxes according to Vancouver CPA. Many businesses make the assumption that they have to be an extremely large business to benefit from this. Even though that is not the case.
As a sole proprietor, business owners will file their business taxes at the same time that they file their personal taxes. And as a result, will end up paying the personal tax rate on their business income.
The reason why this is a cause of concern for most business owners. Is because depending on what tax bracket they are paying personally. They can end up paying significantly more taxes then they would if they had incorporated.
The highest personal tax rate in British Columbia is currently fifty-three point 5%. While the tax rate for corporations is only 11% across Canada. Which means depending on how much personal taxes a business owner is paying. They could be paying over 50% in additional taxes.
Therefore, business owners do not have to be making a lot of money in their business. In order to financially benefit from incorporating. And according to the calculations that Vancouver CPA did.
The threshold in which businesses should be making. In order to financially benefit is fifty thousand dollars per year. Which means even extremely small businesses. Even businesses that have the business owner as the only employee can benefit.
And while many business owners avoid incorporating. Because they know that they are going to have to hire a Vancouver CPA in order to take care of their increased accounting requirements. Such as a corporate year-end, tax planning.
And in preparing the monthly financial statements including the balance sheets and income statements. Even though they will have an additional accounting bill after they incorporate. The tax savings that they will enjoy, will more than make up for the extra bill they will incur.
However, that is not the only place that they will save money once they incorporate. Because sole proprietors must pay employee and employer contributions for CPP. This is something that proprietors are not aware of until they get their year end.
And are hit with an additional assessment from Canada revenue agency. This amount can be up to fifty-two hundred dollars at the end of the year. And if it is owners are not able to pay it off immediately. Can get hit with penalties as well as interest charges from Canada revenue agency.
The only way to get around this additional charge. Is to incorporate. And avoid an additional five thousand dollars tax bill at the end of the year.
The money that business owners save, they can put back into their business. And ideally, used to increase their advertising budget. So that they can find more customers and grow even larger.
Between the additional five thousand dollars tax bill. Plus saving over 40% in taxes on their business income. These are some very important reasons why many business owners should incorporate sooner rather than later according to Vancouver CPA.