One thing that business owners should ask their accountant about when setting up their corporation for the first time says Edmonton bookkeeping is whether they should utilize a holding company and their business. Whether this is beneficial to an entrepreneur or not depends on the nature of their business, as well as a financial plan that their accountant comes up with as well. By discussing this before they set up their corporation can help a business owner determine what is the best corporate structure and financial plan for their business.
One of the first things that business owners need to understand when considering this corporate structure says Edmonton bookkeeping is what holding company is. This is a corporation that owns another corporation. Rather than an entrepreneur owning the shares in their company, the holding company does that. This creates armís-length shareholders and can be beneficial for many reasons. Holding companies are also referred to as limited liability companies and parent corporationís.
There are many benefits to utilizing holding companies in the business, and depending on the financial plan that an accountant and Edmonton bookkeeping company comes up with, the biggest and most common benefits that entrepreneurs will have is being able to minimize the taxes they have to pay on the prophets in their business. Not only can they minimize the taxes that they pay, it also gives business owners the method needed to delay paying themselves if a business owner has an overdrawn shareholder loan account.
Typically, when an entrepreneur’s business has turned a profit, they distribute those dividends to their shareholders, who then must pay a personal tax rate on all of the earnings. The personal tax rate in Alberta currently tops out at 48%, and the average Canadian pays 43% in taxes. Therefore, shareholders may be subjected to paying up to 48% in taxes. However, Edmonton bookkeeping says if business owners take the prophets of the operating company and transfer them to the holding company, they can then plan when they are going to withdraw those funds in order to minimize taxes. They can also just invest that money from their holding company so that they start earning interest on making money on that profit.
One of the most important aspects of this plan says Edmonton bookkeeping is that a business owner can transfer money from one corporation to the other completely tax-free, as long as both corporations are Canadian. This is how business owners can minimize the taxes so efficiently by utilizing a holding company. The more profit that an entrepreneur is able to turn in their operating company, or they are going to be able to save in taxes.
By understanding how the business owner and their accountant will utilize this corporate structure to minimize the taxes that they pay can help a business owner come to the decision on their this is going to benefit them in their business or not. By paying less taxes, and growing their wealth, business owners can use the money that will stay in the business to help them grow the business and become even more successful.
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If business owners do not understand how holding companies can help them save taxes, they may make the decision not to structure their business this way says Edmonton bookkeeping. In fact, many entrepreneurs choose not to utilize this corporate structure because they know that the have to pay additional amounts for their Edmonton bookkeeping company to do their books, and for their accountant because they have to file two separate tax returns.
However, business owners should realize that in most cases, the taxes that they are able to save will offset the additional costs of structuring their business this way. However, business owners also need to take into consideration that there are benefits outside of minimizing tax that should also factor into their decision whether or not this is the best corporate structure for their business or not.
One of the more significant benefits outside of minimizing taxes is contacting the assets and their profits. How this works, is by allowing a business owner to put the assets that they acquire into the holding company instead of their operating company, they are keeping it legally separated from their business. Doing the same their profits, by transferring profits from their operating company to their holding company a business owner can protect their earnings and their assets. This is important if somebody sues the corporation, and they are working damages, or if a business runs into trouble and is being pursued by creditors.
By having the assets of the business and the prophets of the business sheltered in a completely different corporation, keeps them completely out of reach to creditors and liability claims. Therefore, business owners may want to investigate the viability of using a holding company in their business, even independently of the tax benefits that they can enjoy.
In order to ensure that they are getting all of the benefits of utilizing a company, business owners should check with their Edmonton bookkeeping company as well as their accountant. The reason why is because it does matter how each of these is structured in order to give a business owner all of the benefits. For example, ensuring that operations have different year ends can help give business owners the mechanism needed to delay paying themselves if they have an overdrawn shareholders loan account. Therefore, it is very important that business owners do this deliberately, and with a plan firmly in place.
Once a business owner has a holding company as well as and operating company, they can get their accountant as well as their Edmonton bookkeeping company to come up with the best financial plan for their business that can help them minimize taxes in their business. By saving taxes, business owners can use the additional funds to use that to grow their business and become even more successful.