Many entrepreneurs are not aware of how utilizing intercompany transactions can help them minimize their taxes waiting to Edmonton bookkeeping. However, in order to utilize this strategy, business owners need to ensure that they set up a holding company in addition to their operating company. By doing that when they are new in business gives entrepreneurs the mechanism that they need in order to minimize taxes that they have to pay, as well as allowing them protection and the ability to accumulate wealth.
The first thing that the business owners should understand is what holding company actually is. Edmonton bookkeeping says that this is a corporation whose sole purpose is to own another corporation. Instead of a business owner owning the shares in the business that they operate, the holding company does this. This structure is also called a parent corporation or limited liability company.
In order for this to help a business owner minimize taxes, a business owner should ensure that their accountant has set up these corporations to have different year ends. Since these two corporations are also their own separate legal entities, a business owner needs to ensure that this year ends need to get done separately, and they require two sets of bookkeeping as well.
How this corporate structure will help an entrepreneur minimize the taxes that they have to pay, is when a business owner takes the prophets of their operating business, and transfer them to the holding company. Traditionally, if the business earned profits, an entrepreneur would distribute the evidence to the shareholders must pay personal taxes on the amount that they have earned. The highest personal tax rate in Alberta is currently 48%, so they might pay up to 48%. However, if they are transferred to the holding company, it can allow a business owner along with their accountant and Edmonton bookkeeping company to strategize to time the withdrawal of those funds to minimize the taxes that they pay on them, or allow the entrepreneur to invest the money straight from the holding company to minimize the taxes that they have to pay.
It is very important that an entrepreneur can do this between their holding company and their operating company, but they can also do that in between any related companies. What makes a related company, is if the shareholder of one corporation owns at least 25% of another corporation. Therefore, a business owner can distribute profits to any of their shareholders, as long as they own their own parent company.
By utilizing this strategy of using intercompany transactions can help entrepreneurs and shareholders minimize the taxes that they have to pay on their profits says Edmonton bookkeeping. This will allow business owners not only to accumulate wealth but also to ensure that they can keep more money in their business that they will be able to use to grow their business and to become successful. However, business owners need to ensure that they are creating the strategy early on in their business with their accountant in order to reap all the rewards.
Edmonton Bookkeeping | Minimizing Taxes Through Intercompany Transactions
There are many benefits that entrepreneurs can gain from utilizing a holding company in their business says Edmonton bookkeeping. However, many entrepreneurs are not aware of this, or do not understand. Many entrepreneurs lack business financial literacy, as into it discovered. The makers of accounting software QuickBooks surveyed small business owners in order to find out how much they understood about business finances. Respondents were asked questions such as how to improve the cash flow in their business, what accruals are and what the role of their balance sheet is. 82% of respondents scored less than 70% on the test, indicating few business owners understand business finances.
However, when business owners understand this corporate structure, they will be able to make the informed decision of whether this is going to be beneficial to their business and themselves. One benefit that they can enjoy by utilizing this is wising their risk from creditors. How this works, is when an entrepreneur use their holding company to hold the assets of their business such as buildings and real estate for example, it protects those assets from creditors as well as liability claims. If the business is sued, these assets will be unreachable, because they are being sheltered in a holding company.
In addition to protecting assets, entrepreneurs can transfer the prophets of their operating company to their holding company as well, making that money out of the reach of creditors as well says Edmonton bookkeeping. This way, a business owner can protect what they own, and even if their business is sold, shuts down, or fails, a business owner still has all their assets in cash that they sheltered.
By holding assets in the company, holding corporations can help an entrepreneur sell that corporation, transfer it. This is important to know when a business owner is doing their succession planning. Whether they are going to hand the corporation off to their children, or sell it, be able to easily separate that corporation from all of the other assets of the business owner can make it much easier.
In addition to be able to transfer corporations easily, and also ensures that that business owners’ assets are kept separate from their corporations as well. For example, if a business owner purchased a building by allowing their holding company to own that building is that of their business, means that the business can fail, will be transferred and the business owner still owns that building themselves. Utilizing this structure can help business owners keep the prophets that they earned, and protect themselves.
By working with their accountant and Edmonton bookkeeping company, entrepreneurs can find out all of the benefits of utilizing a parent company, and make the decision if that is beneficial for them, and will allow them to save enough in taxes to make paying for the additional corporate year-end and bookkeeping worthwhile.