Vancouver CPA | What to Consider Before Incorporating
Often, the reason why many businesses do not incorporate says Vancouver CPA. Is because they do not think that, and simply run their business as a proprietorship. And while there is nothing technically wrong with this, there are many benefits of incorporating that people should consider.
One of the most significant benefits of incorporating, is allowing businesses to be taxed at the corporate rate, which is significantly lower than personal tax rate. Therefore, the moment business owners incorporate, they will enjoy 11% tax rate.
If they remain as a proprietor, they will be taxed at whatever personal tax bracket they are currently in. And if their business income pushes them into a new tax bracket, their personal and business taxes will be taxed at that new level.
And one of the most significant things to understand, is that right now the highest personal tax rate in British Columbia is over 53%. Which means business owners could potentially risk paying over 50% of their business income in taxes.
Which is why it is very beneficial for business owners to incorporate. And they do not even need to be making very much income every year. In order to benefit from this much lower tax rate.
In fact, even taking into consideration the additional fees that they will have to pay as a corporation. Mainly in increased accounting requirements. Business owners only have to be making fifty thousand dollars each year. In order to come out financially ahead.
This means even very small businesses, and solo entrepreneurs. Can benefit from incorporating their business. Which is why Vancouver CPA recommends that most businesses they talk to should incorporate.
And particularly if the business is a solo entrepreneur. And especially if they are contractor. There are many other benefits of incorporating. Such as getting a WCB number for their business.
Worker’s Compensation often will not issue a number two sole proprietors. Because their justification is, they will typically be a subcontractor on a job. And can get coverage from the prime contractor.
However, in reality prime contractors typically will extend their WCB coverage to subcontractors. Because if they have a claim with WCB, then it is the prime contractors premiums that will increase. Which will cost them more money. Which is why they will not extend their coverage.
This means, that sole proprietors who are contractors may not have access to many job sites simply because they do not have a WCB number. But the moment they incorporate, Vancouver CPA says they will have no problems getting a WCB number.
Giving them access to a wider variety of job sites than they had before. And this is not the only way that solo entrepreneurs were contractors can benefit from incorporation. Some companies will not hire proprietors, because they risk having those proprietors their employees.
When this is the case, the company will have to pay all of the payroll remittances that they would have had to pay. If they hired that person as an employee. Which can cost the business thousands of dollars. So they often have a policy of only hiring contractors that are incorporated.
Therefore, not only can business owners save taxes, but they can also have the ability to accept more jobs. And be able to work on more job sites than ever before once they incorporate.
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One of the reasons why business owners often do not incorporate according to Vancouver CPA. Is because they assume that only large companies can benefit from incorporating. But this is often because they do not understand all of the benefits they get with incorporation.
It is very important that business owners understand that the only way to protect their tradename. Is to incorporates, because that is the only way they can legally protect others from using their name.
Many business owners go to corporate registries office in order to register their tradename. And while this acts as a placeholder. This will not stop anyone else from using that name. And it will not even stop others from being able to incorporate their business using that name.
Another benefit of incorporation. Is that it helps protect a business owners personal assets. Such as their home, vehicles. Because if they get sued and they are a sole proprietor. It is the business owner themselves that gets sued, putting their assets at risk.
However, once a business owner incorporates. If anyone sues the company, it is the company as an entity itself that gets sued. Which can significantly shelter a business owner and their assets.
While this does not offer complete protection. It makes it significantly more difficult for the business owner or any directors of the corporation to lose their assets. In the case that they get sued.
And while some businesses can be high-risk, such as electricians or plumbers. Other businesses that are lower risk, such as accountants or graphic designers. Always have an inherent risk of getting sued while conducting their business, no matter how low risk their business is.
Another benefit to incorporating is that it will help them get business loans. And business owners may need a business loan at some point in the future. In order to help them buy a building, do leaseholder improvements. Even purchase assets they need to to help them grow their business.
Therefore, Vancouver CPA says if a business owner ever thinks that is going to be likely. That they may apply for a loan in the future. They should incorporate sooner. So this does not become a barrier to them being able to apply for and get the loan they need to help them grow.
And in addition to all of these benefits, it can also help business owners save taxes. Not just because they will be taxed at a lower rate is a corporation. But also, as a proprietor, business owners will have to pay the employee and employer portion of CPP.
And what this means, is it is going to be an additional fifty-two hundred dollars tax bill at the end of the year. That they may not be prepared to pay if they do not know about it ahead of time. For small business owners, this can be very difficult build to pay.
Therefore, business owners can incorporate, and eliminate this bill. So for this and many other reasons, Vancouver CPA suggests business owners incorporate their business as quickly as possible and early on in their business as they can.