One of the reasons why a business owner should contact their accountant prior to setting up their corporation is so that they can have an effective financial and tax plan in place says Edmonton bookkeeping. The reason why this is important is to help entrepreneurs minimize the taxes that they have to pay, and learn how to set the corporations up to allow them to defer taxes. Not only can this help business owners accumulate wealth, but it also can help them save money in their business that they can then use to continue to grow their business and become successful.
The first thing that a business owner needs to understand, is that in order to make use of this, they have to set up two corporations for their business. One is a holding company, and the other is an operating company. A holding company is a corporation that owns the shares in the stakes in another corporation. It is sole purpose is to own and control that business. Even though that is it is sole purpose, will in companies also buy and sell assets, and earn money from fits and services rendered.
It is very important that entrepreneurs using their Edmonton bookkeeping company and accountant to set these corporations up. The reason why is because the entrepreneur must only one corporation, and have the other corporation own the other. This is what is going to give the layer of protection that an entrepreneur needs To utilize all the benefits of this structure.
It is also very important that the accountant structures these corporations to have different year ends. While this makes the filing a little more difficult says Edmonton bookkeeping, it also opens up the possibility for a business owner to have a mechanism to delay paying themselves if they have an overdrawn shareholders loan account.
Once they have this corporate structure set up, business owners should understand what intercompany transactions are, because that is the mechanism they are going to use to divert taxes in their corporation. An intercompany transaction are transfers of money that happen between corporations that are related. This means the holding company and the operating companies is in Edmonton bookkeeping, but also, any related companies. Related companies for two corporations whose owner, or spouse owns 25% of a different corporation. By being able to transfer money in between these corporations tax-free is the mechanism that going to help defer the taxes.
By understanding how to set up the corporate structure of their business by using their Edmonton bookkeeping company and accountant can help ensure that an entrepreneurs business is set up for success, so that as they profits, they can accumulate wealth and grow their business. By learning this even before they open the doors to their business is extremely important, so that they can not only can set up their operation accurately, but so that their accountant can do the right financial planning that can help a business grow right from the start.
Edmonton Bookkeeping | How To Defer Taxes In A Corporation
Once an entrepreneur has visited their accountant and Edmonton bookkeeping company and has set up their corporations accurately to allow them to defer taxes, the next thing that they need to learn how to do, is how to transfer those funds in the right way at the right time. By learning this, entrepreneurs can minimize the taxes that they have to pay, and minimizing the taxes that their shareholders have to pay as well.
Typically, when an entrepreneur’s business starts turning a profit, that allows them to be able to distribute the profit as evidence. A business owner cannot take or distribute dividends until there business as turned that profit. In a traditional business, in order to distribute the dividends to shareholders, a business owner would simply cut them a check, and then those shareholders including the business owner must pay taxes On that amount that they earned in the business. Since the highest tax rate in Alberta for personal taxes is currently 48%, that could be almost half of the shareholder’s profit gone in taxes.
However, by utilizing the holding company, can help a notch been or distribute those dividends and way that can defer taxes. How that works, is instead of sending those dividends to each shareholder, an entrepreneur would simply transfer those funds from one corporation to another says Edmonton bookkeeping. Therefore, each of the shareholders can decide when the right timing is to withdraw the funds to minimize taxes. Or, a business owner or shareholder can simply invest the money that they earned directly from their holding company and avoid paying personal taxes on it completely. By utilizing this corporate structure can help business owners defer the taxes that they have to pay.
Another benefit of using holding companies is to hold all of the assets that an entrepreneur has. Instead of only owning one company, and all assets being owned by that corporation, but having all assets owned by the holding company means that those assets are protected from creditors, or lawsuits in case the business falls on hard times says Edmonton bookkeeping. This is especially important if an entrepreneur owns a risky business, to ensure that even if the business is at risk, the dividends and the assets that a business owner has transferred to the holding company remain untouchable and therefore protected.
This can be extremely beneficial to most businesses, but if they talk to their Edmonton bookkeeping company and accountant, and discuss that this is the best structure for their business, they need to ensure that they are working very closely with their bookkeeper to keep accurate financial records and to have the financials done every month, to ensure that at the end of the year, both corporations balanced themselves and with each other. This is extremely vital especially if they have different dates for their year ends. By learning how to do this can help business owners minimize the taxes that they have to pay, which will allow them to increase their wealth and grow their business.