While it is most preferable that entrepreneurs do not use their corporate business counts for personal purchases, and that they do not use their personal money for business bills says Edmonton bookkeeping, 80% of all small businesses do this, and so they need to understand how to keep track of all of those various transactions in their shareholder loan account. The reason why this is important because entrepreneurs will owe taxes on all the money that they take out of their business.

The first thing that entrepreneurs need to understand when they are talking motor shareholders loan account, is what it is. Edmonton bookkeeping says that it is the area of their financial statements that indicate all of the various personal transactions into and out of their corporation. It is set up on the balance sheet, under the liability section for an entrepreneur to keep track.

All the various transactions that entrepreneurs need to consider, is anything at all that is personal into or out of the business. For example, if an entrepreneur has taken money out of their savings account in order to cover payroll, or if they views their personal credit card in order to pay corporate invoices. Also, if the business owner has used use the company debit card in order to pay for meals or groceries, these are all various transactions that should be accounted for in their shareholders’ loan account.

When an entrepreneur is completing their year-end with their Edmonton bookkeeping company and their accountant, all of the money that they have put into their business is subtracted from all of the money that they have taken out their business. All the money that they have taken out, needs to have taxes paid on it. Many entrepreneurs believe that they can simply leave the amount that they owe their business in their shareholders’ loan account says Edmonton bookkeeping. While this is possible, it is not advised, because it can then be considered a long-term liability, and CRA can use their own discretion of deciding when an entrepreneur has to start paying interest on that loan. The reason why this is possible, is because entrepreneurs and their corporations are considered separate legal entities.

An entrepreneur can simply claim the amount of money that they have taken out of their business on their personal taxes, says Edmonton bookkeeping. By doing that, they are resetting their shareholders’ loan account back to zero and then coming up with an efficient tax strategy with their accountant. The better track that an entrepreneur keeps the other shareholder loan amounts can help them minimize the taxes that they have to pay, and minimize the amount that they are claiming. When they do that, entrepreneurs are helping their business and themselves out with an efficient tax strategy, while taking the money out of their business that they need in order to live. Edmonton bookkeeping says that while entrepreneurs should be minimizing the number of personal transactions in their corporation if they learn how to do it effectively, help minimize the taxes that they owe.

Edmonton Bookkeeping | How Entrepreneurs Can Use Shareholder Accounts

It is very important that entrepreneurs come up with an efficient tax strategy along with their accountant says Edmonton bookkeeping on the shareholder’s loan amounts that they take from their business. All of the money that they take out of their corporation through the year through a variety of small transactions for their personal use, add up in the shareholders’ loan account, and need to have taxes applied to them.

How an entrepreneur ends up paying taxes on the amounts that they have taken out of their business, is up to their Edmonton bookkeeping company and their accountant. Their accountant will be able to come up with an efficient and effective tax strategy that will minimize the amount of taxes that they have to pay on all the amounts that they have taken out of their business. An accountant will need to understand the entrepreneurs’ personal and business situation including if they are planning on selling their business, if they have dependence or a spouse and if they have additional revenue coming into their household. They also need to take into consideration things like if they have partners in their corporation and what percentage of shares everyone owns.

The decision on how to claim the money that they taken out of their business comes down to whether it should be salary, dividends or a mixture of both. Edmonton bookkeeping says that the most efficient tax strategies are rarely all salary or all dividends. By working with their accountant, entrepreneurs can come up with the best tax strategy for them. Entrepreneurs should also understand the difference between claiming that they have taken money out of their business as a dividend or as a salary. A dividend is the amount of money that the company has profited and therefore distributed. The dividends show up on the balance sheet of the business, instead of the income statement. When an entrepreneur claims this, they will pay personal tax on the amount, but their business how to of profited at least that amount in order for that to work.

Salary, on the other hand, is the most common way for entrepreneurs to get rid of the amount left in the shareholder’s loan account. However, salary is considered an expense to the business. The more salary that is claimed, the more it decreases the prophets of the business. This is very impactful if an entrepreneur is planning on selling the business, and want to ensure that their profit looks as positive to potential investors.

Edmonton bookkeeping says that something else for entrepreneurs to keep in mind when they are claiming salary, is that they will owe all the appropriate source deductions off of that amount if they claim that they have taken that money out of their business a salary. This means not only income tax, but also EI, and employer plus employee CPP amounts.

When entrepreneurs understand how shareholders loan accounts work, and how it needs to be utilized for tax benefits, they can come up with an efficient and effective tax strategy with their accountant that can have them paying the minimal amount of taxes possible, on the money that they have taken out of their business.