Vancouver CPA | What to Consider When Incorporating
When mistake that many business owners may end up making according to Vancouver CPA. Is thinking that they do not need to incorporate their business yet. Because there is no benefit their small business.
However this is not true, and there are many benefits of incorporating. And even though there is often a cost associated with doing this. The benefits can far exceed any costs associated with incorporating. Which is why even small business owners should do this.
One of the first things that business owners will be able to protect once they incorporate. Will be their own personal assets. Because incorporating will give them limited liability. Which means if a business owner gets sued while conducting their business. If they are incorporated, it is the company as an entity that gets sued. And not the business owner personally.
This does not necessarily mean that there is a zero risk to the business owner. It is a sole proprietor, if they get sued. Then it is the business owner and their own assets that are at risk. And if a business owner has family home, they are putting that at risk by not incorporating.
Another benefit of incorporating will be protecting their tradename. Which is their businesses identity, and name that they worked so hard to build a name for. Which is why it is so important to protect says Vancouver CPA.
Unfortunately, many business owners make the assumption. That by registering their tradename legally protect sent. And while registering their tradename gives it a placeholder. It does not prevent others from taking the same name and incorporating using it.
Because of this, business owners who want to protect their name should incorporate their business as quickly as possible. Which gives them the legal right to their tradename. So that they can protect the name of their business.
Another important reason why business owners should incorporate, especially early on in their business. Is because if they are an independent contractor. A may not be able to accept all jobs that come their way. If they are not incorporated.
The reason why, is because many companies have a policy to refuse to hire sole proprietors as contractors on their job sites. The reason for this, is because they run the risk of having Canada revenue agency consider those contractors to be their employees.
If Canada revenue agency does find that contractors should be considered employees. Then the company that hired them will now be responsible for paying any payroll remittances that should have been submitted to CRA and the beginning of that contractors employment.
This can equal thousands of dollars that companies will have to pay. That they can avoid paying. If they decide to only hire contractors that are incorporated.
Therefore, if small business owners want to ensure that they can take as many jobs as possible. So that they can grow quickly and grow large.
They should incorporate, that they can take as many jobs as possible. As well as reap all of the other benefits of incorporation says Vancouver CPA.
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If business owners make the assumption that they should not incorporate because it is expensive, Vancouver CPA says they could be causing themselves to pay more in taxes.
This is a common assumption that many business owners make. Because they understand that while there is a cost to incorporating their business. There are also or accounting requirements that they must adhere to.
And those increased accounting requirements, will mean that they will have to hire a Vancouver CPA sooner in their business. In order to do their corporate year-end, their tax planning. As well as creating their monthly financial statements. Such as a balance sheet and income statement.
However, while they have this additional cost that they must pay for every month. The financial savings that they can enjoy once they incorporate. Can offset any additional bills or fees that they may incur through their corporation.
The reason why, is because sole proprietors will file their taxes for business. Alongside their personal tax return. By filling out a separate form, and submitting everything at the same time.
And while this seems like an easy way to do taxes. That also means that a business is going to be taxed at the personal tax rate that the business owner currently has.
The highest personal tax rate in British Columbia is currently over 50%. Which is a lot of tax to be coming off of business income. And even if a business owner is not at the highest personal tax rate yet.
Once they submit their business income, they might be at the highest personal tax rate or close to it. But even if they are not, they are still going to be paying far more than the corporate tax rate is. For all businesses that have incorporated.
Currently, the corporate tax rate is 11% across Canada. Which means business owners can pay significantly less taxes the moment they incorporate. And although there might be additional bills that they get in order to meet the reporting requirements.
The amount of money that a business owner has to make. To come out financially ahead is very low. Each means even very small companies will financially benefit from incorporating.
As long as a business is invoicing around fifty thousand dollars every year. They will benefit financially from incorporating. Even when factoring in the additional accounting fees into the equation.
This is why Vancouver CPA recommends most businesses incorporate early on as possible in their business. The money that business owners save in taxes. Can be spent on anything else in their business.
Such as hiring new staff, purchasing assets that will help them grow their business even more. Or they can use the money to increase their sales and marketing spend. So that they can find even more customers than ever before.
The sooner small businesses incorporate, the sooner they can start benefiting from incorporating their business. Such as saving money, and paying less taxes. As well as having better financial information in which to make their financial decisions with.