When business owners start their business says Edmonton bookkeeping. They often wants to know when they will be able to get paid. And how much. But even more importantly, they often want to know how they’re going to be able to save on their taxes.
One of the reasons why people might be drawn to becoming an entrepreneur, is so that they can save on the taxes that they have to pay. The average Canadian citizen pays approximately 43% of their entire wages in taxes according to the Fraser Institute. These include the payroll taxes that they must pay as an employee such as income tax, CPP and EI. But they also including GST, Fuel and carbon tax into this calculation as well.
In fact, Alberta’s highest tax rate currently sits at 48%. Which is a half of all of a person’s wage going to taxes. And by comparison says Edmonton bookkeeping, 37% of the remaining amount goes towards basic necessities such as their shelter, the food they need to eat to live and clothing.
Therefore, business owners understand that one of the benefits of owning a corporation is that they get to save taxes. If they can minimize how much taxes they have to pay says Edmonton’s bookkeeping. They can take play 63% of the wage that is not taxed and put it into growing their business, peeing themselves more money. And using it to save for the future so they can accumulate their wealth.
The song requires a great accountant who is very good at helping entrepreneurs save taxes in their business. They will do this by understanding not only the businesses finances. As well as the personal circumstances of each of shareholder. But also by figuring out exactly how much money in dividends and salary each shareholder of the corporation needs To take. In order to save the maximum amount of taxes for them personally.
It’s typically not a matter of taking 100% salary, or 100% dividends says Edmonton bookkeeping. But a unique mix between the two, based on all of the unique circumstances of the moment. This is also likely to change every year, as the circumstances of the business change. As well as the circumstances of each shareholder.
Business owners needs to keep in mind that any salary they take out of the business will be taxed at the full payroll taxes that typical employees will take. Meaning they will have the regular Source seduction removed from this amount. Including income tax, CPP and EI says Edmonton bookkeeping.
And while many entrepreneurs think that means they should never take a salary. So that they never have to pay these taxes. It’s important that they take some in salary. So they end up paying some taxes to the government. So that they are not assessed later on with having to pay more taxes.
And it’s not always possible for entrepreneurs to take all of the money out of their business as a dividend. Since Dividends are a disbursement of the prophets of a corporation. And if the business profit enough to allow the shareholder to take all of their draw and dividends. Then they simply can’t.
This is why it’s important to hire a great accountant says Edmonton bookkeeping. Who can figure this out for the business owners. So that they can focus on growing their business, knowing that’s their accountant is helping them not only get paid. But pay the least amount of taxes that they possibly can.
Edmonton Bookkeeping | Is Taking Dividends Better than Taking Salary
If entrepreneurs don’t have a great accountant says Edmonton bookkeeping. They may take all of the shareholder draws that they must take out of their corporation as salary. And end up not actually saving any taxes at all.
they might make this mistake, because they are using a payroll table to help themselves get paid. Because they know that they need to make a regular income. Or, whenever they write the check to themselves for their shareholders draw. They write salary in the memo line. Not realizing that’s going to force their accountant 2 utilize that money only as salary. Even if it’s not the most beneficial for them.
Weather the money that a shareholder takes out of their corporation is salary, dividends or mix of the two. Typically is a decision made by the accountant at the corporation’s year-end says Edmonton bookkeeping.
The accountant will do the entire year end, taking into consideration how well the business did, as well as the personal circumstances of the shareholders. In order to figure out how much money the shareholders took out in total, and what percentage needs to be salary and what percentage needs to be dividends.
One way that the accountant is going to come to that conclusion that is by understanding the personal circumstances of each of the shareholders. Edmonton bookkeeping says this means that they will do a personal balance sheet and personal income statement for each shareholder. This will allow them to figure out what the net worth of each shareholder is. And any resources they have at their disposal.
The personal balance sheet will list all of the shareholders assets that they have in their name. And it might include things like their house, Vehicles they own, or things such as tax free savings account and rrsps.
On the second half of the personal balance sheet are the liabilities that are in their name including things like the mortgage on their home, a car payment or any Consumer Debt. This way, the accountant will be able to subtract the liabilities from the assets, and understand if they have any resources left over.
If they have resources left over, this might be once the shareholders must live on until their corporation is generating an income for them. Or, it will be what resources they might have to take out of their personal life to put into their business if that becomes necessary.
Edmonton bookkeeping sense the personal income statement is next. And focuses on all of the expenses the shareholders have. The fixed expenses are first, and these are all of the expenses that require every single month and in the same amount.
This might be things like their mortgage payment, or their car payment. It can include things like their utility bills as well as phone and internet. And shareholders often look at their fixed expenses, and starts to make some decisions on if all of these expenses are absolutely necessary.
The second half of the personal income statement are going to be all of their variable expenses and these are the expenses that are more easily controlled. But not necessarily skipped. And might include things like the grocery expenses of the shareholders and their family. But they can also include things such as meals and entertainment, clothing allowance or gym membership.
Shareholders truly get a sense of what is absolutely necessary in their life to pay for. And they end up cutting quite a bit of their expenses after doing their personal income statement. Most shareholders know that there are several things that they might have to give up in order to chase their entrepreneurship dreams. And giving up some of their Creature Comforts can be one of them.