It can be extremely beneficial for entrepreneurs to set up their corporation that utilizes holding company as well as and operating company says Edmonton bookkeeping. However, it is important that an entrepreneur also understands why they should structure their business this way so that they can take advantage of all of the benefits associated with it. This can help business owners minimize the taxes that they have to pay, as well as protect the assets that they do own.
If business owners do not understand why their accountant is recommending they set up a holding company, they might simply hear that it is going to cost them extra money to file separate year-end and decide that it is not something they like to do. However, Edmonton bookkeeping says that it can help them minimize taxes, and protect their assets, and often the amount of taxes that can save offsets the amount that it costs them to do the additional bookkeeping and file the year ends.
One of the first things that entrepreneurs need to understand about this corporate structure is what the role of a holding company is. This is a corporation whose sole purpose is to control the business. Therefore, it owns the other corporation. This means that the business owner becomes and armís-length shareholder in that business, and the only business that the entrepreneur owns is the holding company. This structure is also called a parent corporation or limited liability corporation.
While it is true, Edmonton bookkeeping says that these different corporations will require to have separate bookkeeping and separate year ends filed, the most important reason to take note of that is so that the entrepreneur can be very careful in keeping track of all of the transactions that happened, not just what they are and where they need to be filed, but what corporation it needs to be filed under as well. By keeping an accurate record of these can help their Edmonton bookkeeping company keep good financial records of all the corporations so that they can end up with accurate financial records in their business.
Accurate financial statements are important for an entrepreneur to be able to use that information to make financial decisions in their business. However, Edmonton bookkeeping recommends that entrepreneurs will ask their bookkeeper to update their books every month. By ensuring all transactions are matched for both companies and always every month, can ensure the accuracy of their financial statements. What else it does however, is it will help ensure the accountant can complete the fiscal year-end for each corporation much easier if they are accurate throughout the year. This is extremely important especially if the corporations have different year-end filing dates from each other. An accountant may not be able to finish both years ends of the same time to ensure the accuracy of the year ends, therefore keeping it as accurate as possible ahead of time is important.
Edmonton bookkeeping says that this is extremely important for business owners to do to ensure they have set up their corporations accurately. By utilizing this corporate structure, business owners can plan with their accountant effective tax strategies can help them pay a minimal amount of taxes possible.
Bookkeeping | Setting Up A Corporation For Efficient Tax Strategies
Many entrepreneurs are not understanding why their accountant is asking them to set up a holding company for their business says Edmonton bookkeeping. In fact, many entrepreneurs struggle with understanding business financial basics. Intuitís, the makers of QuickBooks did a survey of entrepreneurs in order to quiz them on how much they understand about their business finances. They asked them questions such as what is the role of a balance sheet, what our accruals, and how to improve their cash flow. Out of all the respondents who answered the quiz, 82% scored less than 70%. Showing that many entrepreneurs struggle with understanding business finances.
Therefore, many entrepreneurs may not understand what their accountant is requesting they say to set up a holding company. However, holding company can be extremely beneficial in the task of minimizing the taxes that a business owner has to pay. For example, when a business starts to turn a profit, and the business owner is going to distribute those dividends to the shareholders including themselves, traditionally, they distribute the dividends and the shareholders must claim that money as income and then they have to pay taxes on it. Since the highest tax rate in Alberta currently is 48%, and the average Canadian pays around 43%, it is very possible that without doing anything to minimize the taxes, almost half of everything that the shareholders make from their corporation will be paid in taxes.
However, if an entrepreneur sets up a holding company, instead of distributing the dividends that will then get taxed, an entrepreneur can transfer the dividends from the operating company to the holding company. Then, they can strategize with their Edmonton bookkeeping company an accountant on the best time and the best way to take that money out of the corporation to minimize the taxes. One of those ways could be taking that money straight from the holding company and investing it to avoid paying taxes.
In addition to minimizing taxes, an entrepreneur can also protect their assets as well as those dividends that they transfer to their holding company says Edmonton bookkeeping. Once they transfer assets and money from the operating company to the holding company, which is completely tax-free, a business owner has effectively protected those assets and funds from creditors, as well as liability claims. Therefore, if a business owner wants to protect their assets case their business fails especially if they are in a risky business, this is how they would do it.
There are many reasons why an entrepreneur should listen to their accountant and their Edmonton bookkeeping company and set up a holding company as well as and operating company, and minimizing taxes, and protecting their assets are two extremely good reasons.