Vancouver CPA | Why Incorporate a Business
If business owners are not aware of the benefits of incorporation, Vancouver CPA says they might not make the decision to incorporate. And because of that, may not enjoy a lot of the benefits that incorporation can bring.
In fact, many business owners are not sure what benefits if any come with incorporation. And see it is something that only large businesses need to worry about doing. Which is why they often decide not to incorporate their business.
However, if they make this decision, Vancouver CPA says they can often end up paying more in taxes than they intended, and put their business at risk of running out of money in their business.
When businesses are not incorporated, the business structure is called a sole proprietorship. And they file taxes at the same time as their personal taxes. And the only requirement they need, is filling out an additional form.
However, when they do this, because there filing their business taxes along with their personal taxes. Their business income will get taxed at the same personal tax rate that the business owner is currently getting taxed at.
Depending on what tax bracket a business owner is in, that could mean that they are being taxed over 50%. Because the highest personal tax rate in British Columbia is currently fifty-three point 5%.
And while this seems very high, many business owners think that they need to be making a significant amount of money in their business. In order for that to equal very much money in their pockets at the end of the year.
However, since the tax rate for corporations is only 11%. That could be up to or over 42% in a tax savings. And it does not take a lot of income for 42% to equal a lot of money.
In fact, Vancouver CPA did some number crunching, in order to find out what threshold of income a business needs to make per year. In order to make incorporation financially beneficial.
And what they discovered, was that businesses only need to make fifty thousand dollars in a year to make incorporation make financial sense. Therefore, even very small businesses, where a business owner is the only employee. Can benefit financially from incorporation.
However, this is not the only place where they can save money through incorporation. They can also save money by not having to pay both the employee and the employer contribution for CPP. In fact, many sole proprietorships are not even aware that they must pay this payroll remittances.
Therefore, they could submit their year-end taxes. And get hit with this additional assessment later. And that could be an amount up to fifty-two hundred dollars. That a business owner suddenly has to come up with and pay Canada revenue agency. Or face penalties and late fees.
The only way to get out of paying the employee and employer contribution of CPP. Is simply by incorporating their business.
Not only will they save up to forty-three point 5% in taxes. But they will also save up to fifty-two hundred dollars a year. Which is worth incorporating over.
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If business owners do not understand how their business can benefit from incorporation, Vancouver CPA says they might not make that decision. However, incorporation can be very beneficial for many reasons to businesses large and small.
One of the first things that business owners need to understand about incorporation. Is that it gives the business owner limited liability. Which is helpful in case they get sued while conducting their business.
Instead of the business owner being responsible if they get sued, and all of their personal assets be put at risk. Once a business owner incorporates, it is the corporation that shoulders that responsibility. Which can make it significantly more difficult for business owner to be affected in case they get sued.
And while this is extremely helpful for businesses that are in a high-risk industry, such as plumbing or an electrician. Many business owners run low risk businesses such as graphic design or web design companies. And are not sure why this is needed.
However, every company runs the risk of being sued, no matter how innocuous the business might seem. Even by getting in their car and driving to a business appointment, they can run the risk of being sued. Which is why it is very important for business owners to protect their personal assets.
Another thing that they can protect by incorporating is their tradename. And while many business owners make the assumption that when they register their tradename. This will legally protected but that is not the case.
Registering a tradename simply creates a placeholder for that name. But it cannot stop someone else from taking the same tradename, and incorporating their own business with that name, regardless of who registered the name first.
And whoever incorporates the name, has legal rights to the name. Which means that business owners, even if they have been operating with that name for years. May have no legal recourse if someone takes the name. Because they have not incorporated it first.
Therefore, business owners can protect their personal assets and their business name by incorporating. But there are many more benefits according to Vancouver CPA. One thing that business owners need to keep in mind. Is that if they ever need a loan.
Either from a bank or financial institution, they will need to be incorporated. Because banks will not award a business loan to a sole proprietor. Therefore, if business owners think that they ever might need a loan. Either to buy a building, provide leasehold improvements.
Or purchasing assets. Should be proactive and become incorporated sooner rather than later. So that they do not have that as a barrier as to why they cannot get a business loan. By incorporating early on, business owners can avoid that problem.
These are just some of the benefits of incorporation. Vancouver CPA says business owners can also save taxes, and get access to more jobs if they incorporate.
But if business owners want any more specific information to their circumstances. They should set up a free consultation to ask all of their questions