Helping entrepreneurs understand the importance of keeping track of the money that they have taken out of their business is important says Edmonton bookkeeping. Essentially, at the end of their fiscal year if an entrepreneur has taken more money out of their business to pay for personal expenses then they have put in, they need to claim that in income to Canada revenue agency. Therefore, it is very important that business owners are keeping track very carefully of not only all of the money that they have taken out of their business, but also how much money that they have personally put into their business as well. 80% of all entrepreneurs use personal finances to help fund their business.
The way an entrepreneur is going to keep track of all of the money that they have both taken out of the business and put back in, is through was called a shareholder loan account. Edmonton bookkeeping says this is an account that has been set up on the balance sheets of the business, in the liability section is going to help an entrepreneur in their accountant to keep track of all of the personal money that is coming into and out of the business. All types of personal transactions should be considered shareholder transactions. From using the bank card to pay for personal purchases like groceries or meals, to taking money out of the bank machine to use personally. Also, either writing a check to cover a business expense, taking money out of their RRSPs to cover payroll, or using their personal credit card to pay a business bill are all examples of shareholder transactions.
At the end of the year, it is important that an entrepreneur subtracts the amount that they have put into their business from the amount that they have taken out, so that they end up with a balance of either money that they owe back to their business because they have taken more out, or the business owes them because they put more money in. Edmonton bookkeeping says that when an entrepreneur has put more money into their business, that allows them to be able to take that amount back out at a future date tax free. However, if an entrepreneur has taken more money out of their business, that is money they need to pay back to the business, or, tell Canada revenue agency that they have taken it out as salary or as a dividend.
The reason they need to claim that money, is that since they are considered a separate legal entity, they need to be treated differently for tax purposes. By paying the appropriate taxes on the money that they profited from their business, business owners can then reset the shareholder loan balance back to zero and start accounting money spent again.
When entrepreneurs keep track of all of the money that they put into their business and take out, then they can ensure that they are managing their shareholder loan accounts in a way that can help keep them either pay taxes on the money that they have taken, or be able to take the money that they put into their business out a future date tax free, that will enable them to significantly benefit later.
Edmonton Bookkeeping | Differences Between Salary And Dividends
When an entrepreneur discovers at their fiscal year and says Edmonton bookkeeping that they have taken more money out of their business for personal reasons than having put in, then they need to declare on their income tax return to Canada revenue agency how they have taken the money out of their business. There is different tax applications the entrepreneur and their business would the different ways they can take it out, and how they take money out of their business depends on their personal circumstances and the strategy that their accountant comes up with.
Edmonton bookkeeping says that many entrepreneurs want to know what they can just continue to open their corporation, and declare taxes at a later date. This is often if entrepreneurs cannot afford to pay the taxes, or they believe in the future year they are going to put more money in, so they think that they can restore the balance then. And while this is technically possible, entrepreneurs also should know that it is not advisable. When they owe their corporation, that becomes considered a liability, and Canada revenue agency may wonder why they are not paying interest on the lower profit their business has given them. They may require the entrepreneur to pay interest dating back to the first time they took that money out of their business, and pay additional penalties and interest. In order to help an entrepreneur avoid that fate, they should simply declare that money as income and pay the taxes instead of risk paying additional penalties.
There are two different ways that entrepreneurs can claim that they take money out of their business says Edmonton bookkeeping. They can either claim salary or dividends. There is many differences between the two, and very few entrepreneurs ever get paid in one hundred percent salary or one hundred percent dividends. It is typically a mix of the two, and done in a strategic way to minimize the amount of taxes that an entrepreneur has to pay. Helping figure out those factors is their accountant, that will asked them a variety of questions including if they are the sole owner of the corporation, and if they have any of their income from outside sources.
An entrepreneur should understand that dividend is very separate from what salary is. It is the amount that the corporation has declared as profits, and therefore is free to distribute. It shows up on the balance sheet as an asset instead of a liability on the income statement. It also does not negatively affect the profit of the business says Edmonton bookkeeping.
The salary however, is much different, because it is considered an expense of the business, entrepreneurs must pay payroll taxes on. however it is the most common way for an entrepreneur to disburse their shareholders loan accounts. When entrepreneurs make the decision with their accountant on which method is best for them, it should be reviewed every year to ensure that entrepreneurs circumstances have not changed.