Vancouver CPA | Why Businesses Should Incorporate
One of the reasons why business owners do not incorporate when they first open their business according to Vancouver CPA. Is because they want to save money. However, this is exactly the reason why they should incorporate their business quickly.
While there is a cost associated with incorporating a business. As well as increased accounting fees. Because business owners will have more reporting requirements.
And that hiring an accountant to work on their corporate year-end, their T4 and T5 slips. As well as tax planning, and creating monthly financial statements. Such as the business owners sheet and income statements.
Even with those additional costs, a business owner is still financially ahead to incorporate, with the lower tax rate that they will enjoy. Which is why Vancouver CPA recommends that business owners should incorporate their business sooner rather than later.
Business owners are also way to be able to get a significantly lower tax rate by incorporating their business. Because the tax rate for corporations across Canada is only 11%.
While proprietors will have to pay whatever personal tax rate that they are paying personally in their own province. Therefore, people in British Columbia should understand that the highest personal tax rate is currently fifty-three point 5%.
Which means they may be paying over 50% in taxes on their business income. When the corporate tax rate is only 11%. And even though many business owners may not be at or even close to the highest personal tax rate.
Whatever they are paying, is going to be more than 11%, which is one reason why Vancouver CPA recommends business owners incorporate sooner rather than later.
However, paying a corporate tax rate is not the only way that a business owner is going to save in taxes when they incorporate. Because once they incorporate, they no longer have to pay the employee and employer contribution for CPP.
Many sole proprietors are not aware of this when they first start their business. That they have to pay both the employee and employer contribution of CPP. It can end up being over five thousand dollars in additional taxes being assessed at the end of the year.
And not only is five thousand dollars very difficult for small business owners to come up with. If they are not able to paid off right away. They can incur penalties as well as late fees from Canada revenue agency. And the only way around this, is to incorporate their business.
Therefore, with the tax savings from going to the personal tax rate to the corporate tax rate for their business income. As well as not being assessed the employee portion of CPP. Can help business owners significantly save how much money that they are spending in their business.
And business owners who save this money, can use it in their own business says Vancouver CPA. In order to pay bills, hire new staff. Or even purchase assets that will help them grow. And spend it on sales and marketing find more customers.
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If business owners are not aware of all of the benefits of incorporation says Vancouver CPA. They may put off incorporating their business until later. And miss out on many benefits.
However, many business owners only know about the tax savings that they can enjoy is a corporation. And still think that they need to be a large company in order to enjoy those tax savings. So they do not even think about incorporating their business when they are new, and when they are small business still.
However, business owners need to understand that there are many benefits to incorporating. Over and above the tax savings that they can enjoy. And when they understand those benefits, and how it can positively impact and help their business.
It will be far more likely to incorporate their business because it is the right decision for their business. And benefit in a multitude of ways. One of the first things that they can do by incorporating their business, is protect their personal assets.
The reason why incorporating protects personal assets. Is because it gives the business owner limited liability. While the corporation shoulders the responsibility if the company gets sued.
For example, if a business owner gets sued while conducting their business. Even in a very low risk business such as graphic design. It is the business owner directly that gets sued. Which puts their personal assets at risk.
If they own things like vehicles, or a home. And they are not incorporated, they can be at risk of losing those things if they get sued, and loose. Which is why many business owners choose to incorporate according to Vancouver CPA. So they can protect their assets.
In addition to protecting their assets, incorporating can also protect their tradename. Despite the fact that many business owners register their tradename in order to protect it. That will not stop other people from being able to incorporate a business using that name.
Therefore, business owners want to protect the name that they are creating. In the business that they are growing. They should incorporated, which will legally protect their name.
However, protecting their name and their assets are not the only benefits of incorporating. They will also be able to qualify for business loans if they incorporate. Because banks and financial institutions typically will not award business loans to sole proprietors.
Therefore, if a business owner is ever going to need a business loan. Whether it is to purchase a building, do leaseholder improvements on their within their business. Or if they want to purchase an asset that will help their business grow.
Business owners should incorporate sooner rather than later. So that does not become a barrier to being able to qualify for the loan that they needed to grow their business.
There are even more benefits than these listed. So any business that wants to know more information about incorporation. Should contact their Vancouver CPA. In order to make the decision that is most beneficial for their unique set of circumstances.