In order to help entrepreneurs understand how to manage their shareholder loans, Edmonton bookkeeping says that entrepreneurs first need to understand what a shareholder loan is, and why they need to keep track of it so carefully. Since 80% of all entrepreneurs end up using personal finances to finance their business, or taking money out of their business for personal expenses. When entrepreneurs learn how to keep track of that money appropriately, it is can help them minimize the taxes that they end up having to pay on it.
The first thing for entrepreneurs to understand is a shareholder loan account is an account that is set up in the balance sheets of their business, in order to keep track of all of the money that personally goes into or out of their business. It is listed in the liability section. At the entrepreneurs’ fiscal year-end, they need to calculate how much money they have put into their business, how much money they have taken out of their business, and if they have taken more money out then put in, they owe taxes on that amount.
Some entrepreneurs think that they can avoid paying taxes on that amount simply by leaving the amount that they owe their corporation and the shareholders’ loan account for the next year. Edmonton bookkeeping says that this is not advisable simply because it can become very risky to leave that amount in there. Since an entrepreneur and their corporation are considered legally as separate, if an entrepreneur has an amount that they owe their corporation for any length of time, Canada revenue agency can claw back that interest, and expect the business owner to pay interest on the amount that they have taken from their corporation. In order to avoid penalties and additional interest, entrepreneurs can simply claim the amount that they have taken on their income tax, pay the taxes and avoid paying interest and penalties.
If an entrepreneur has ended up putting more money into their business then they have taken out, that means surplus that they have put into their business can be taken out at any time tax-free. Entrepreneurs can use this strategy with their accountant to help figure out the best and most advantageous time to take this money out of their business.
Another thing for entrepreneurs to keep in mind is that shareholders loan accounts are for businesses that are incorporated. If entrepreneurs are operating their business as a proprietorship, they do not need to keep track of their shareholder’s loan amounts, just simply keep track of all of the money that they have taken out of their business, that they can later claim on their taxes as income.
When entrepreneurs understand what shareholder loan accounts are, they can ensure that there keeping very good track of all of the money that they take out of their business as well as put into their business, so that they can end up with a clear picture of how much money they have taken out of the corporation in order to pay taxes on it. By working with their accountant to come up with an efficient tax strategy, entrepreneurs can demise the amount of taxes that they end up paying on that amount.
Edmonton Bookkeeping | Claiming Taxes On Shareholder Loan Amounts
Since 80% of all entrepreneurs use their business for personal finance reasons says Edmonton bookkeeping, as well as using personal finances to fund their business. Because of this, entrepreneurs need to keep track of all transactions in a shareholder’s loan account. At the end of their year, if they owe more money to their business then they have taken out, entrepreneurs need to work with their accountant to come with a tax plan to minimize the amount of taxes that they have to pay on that amount.
When entrepreneurs accountant is going to take several personal and business factors into account in order to come up with the most efficient tax strategy. Including other sources of income, dependence, if they are planning on selling their business, and the percentage of shares that they own. When they have come up with the best tax strategy, it is likely going to be a mixture of salary and dividends says Edmonton bookkeeping. An efficient tax strategy is rarely all salary or dividends. The best mix for the entrepreneur will depend on the entrepreneur’s situation each year.
an entrepreneur should understand the differences between dividends and salary, so they can understand why an accountant has to come up with an efficient strategy. The dividend says Edmonton bookkeeping is the prophets of the business that is distributed. If an entrepreneur claims that they have taken money out of their business as a dividend, they need to at least have profited that amount. They will pay the personal tax rate on that amount.
Salary, on the other hand, is not a profit of the business but considered an expense instead. Edmonton bookkeeping says that this means when an entrepreneur takes salary, it negatively impacts the bottom line. This is not usually a problem unless an entrepreneur is planning on selling their business, right want to minimize the amount of salary that they take, so their bottom line can look as positive as possible for an investor.
When an entrepreneur claims salary, Edmonton bookkeeping says they also need to ensure that they are paying the appropriate source deductions for the entire amount that they have taken as well. That includes income taxes, employment insurance, and the employer and employee contribution to CPP. If an entrepreneur has claimed they taken salary, not only do they need to claim that amount, but they also have to pay the source deductions from their corporation.
By working with their accountant, entrepreneurs can come up with an efficient strategy on how to claim the money that they have taken out of their business in order to minimize the amount of taxes that they have to end up paying on that. That is possible only through keeping extremely good track of all of the various personal transactions through their shareholder loan account.