Mow many entrepreneurs believed that shareholders should not start getting paid in the business says Edmonton bookkeeping. Until they have started generating a lot of Revenue in the business. And while this is great advice. It’s not always practical advice to every single entrepreneur.
In fact, many people start a business, because that’s one of their only options for employment. And not only did they needed to start earning an income of right away. But it’s because they are often the only income provider in their family. And they need to pay their bills and feed their family.
Therefore, each shareholder must ensure that they have a great accountant. Who will not only take the finances of the business into consideration. But also the personal circumstances of each shareholder. In order to help them figure out exactly how much money they need to live. And when they need to start taking that out of their corporation.
Not all entrepreneurs are the same says Edmonton bookkeeping. This is why is extremely important to hire an accountant that’s going to be able to work with the business owners. To help them accomplish all of their goals. Even if that means helping them take money out of their business right away. So that they can survive.
How an accountant is going to do that since I’ve been 10 bookkeeping, is by doing personal balance sheets and personal income statements for the shareholders. This will help them figure out what the net worth is of each shareholder. As well as what their resources are. And can help them figure out exactly what they need in order to live.
Starting with the balance sheet says Edmonton but keeping. This will help the accountant figure out all of their assets and liabilities. The assets might include things such as a house that’s in the shareholders name, Vehicles they own.
Or it could include money. They have saved up, such as a tax free savings account or in rrsps. This could also includes things such as Investments, stocks or bonds that’s the shareholder owns as well.
The liabilities come next, and they can include all of the debt servicing that the shareholder has, such as the mortgage that’s in their name for their house. The car payment, or even Consumer Debt and taxes they owe..
This is going to help the accountant understand all of the resources that the shareholders possess. And whether they needs to live on these resources and tell their business can start earning them an income. Or if they need to take resources out of their personal life. To help fund their business.
the income statement is next. And this deals with all of the expenses that the shareholders must pay says Edmonton bookkeeping. The fixed expenses are first. And these are all of the expenses that are static, and are going to be required every month.
Typically, these expenses are necessary in order to live. But shareholders can minimize some of these expenses if they are so inclined. These might include things such as their rent or mortgage payments, car payments, utility bills. As well as phone and internet. These are going to stay the same amount every month. And typically, the shareholder must pay them in order to live.
The variable expenses are next. And while these are not necessarily static every month. They also might not be able to be eliminated completely such as their grocery or Pharmacy bills. However, these are the expenses that are easiest to control says Edmonton bookkeeping and might have the shareholder say that they can give up their gym membership or clothing allowance. So that they can take less out of their business and still survive quite comfortably.
Edmonton Bookkeeping | Should Shareholder’s Get Paid
Helping shareholders get paid is an extremely important function of an accountant says Edmonton bookkeeping. And while a lot of shareholders start their business in order to minimize taxes. That’s also something that their accountant is going to be able to help them with.
In fact, paying minimal taxes is one benefit of Entrepreneurship. And many people start their own business. In order to help minimize the taxes that they have to pay. The average Canadian pays 43% of their entire wage in a variety of taxes according to the Fraser Institute. And this includes the payroll taxes that they must pay including income tax, CPP and EI. But it also includes other taxes such as G St, fuel taxes, carbon taxes just to name a few.
With almost half of a typical Canadian paying their wages in taxes. This is the reason why many people are motivated to save their taxes by becoming an entrepreneur. But hiring the right accountants that can help them do that is extremely important.
how will they take their shareholder draw out of the corporation is going to matter greatly says Edmonton bookkeeping. And once they start taking money out of their corporation. They don’t necessarily needs to know right away if they need to take money as salary or as dividends.
They will figure that out at the corporate year end of the business. When they do the business’s finances. Likely however says Edmonton bookkeeping it’s going to be a mix of some dividends and some salary. Based on how well financially the business did. But also the personal circumstances of each shareholder.
In order to take a dividend, Edmonton bookkeeping says the business needs to be generating a Prophet. Simply because Dividends are only available when the business starts profiting. Therefore, if the business did not profit. Then the answer is simple and the shareholders will only earn a salary for that year.
However, a salary is taxed at the typical rate that employees will needs to pay that includes the income taxes, CPP and EI. It’s necessary for an accountant’s to minimize the salary in order to help save taxes. but if a shareholder doesn’t take any salary. Then the government might assess them additional taxes. Because they didn’t pay enough.
When they are taking their shareholder draw says Edmonton bookkeeping. Shareholders needs to be very careful that they don’t accidentally pay themselves in correctly. That will force the accountant to not be able to choose the best mix for them.
For example, if entrepreneurs are using payroll tables to pay all of their employees plus the shareholders. This is going to force that income to be calculated as Valerie. And once income is classified as salary, an accountant cannot classify it as anything else.
Also, if an entrepreneur taking their shareholder draw rights themselves a check. Edmonton bookkeeping says if they put salary in the memo line of that check. They are also forcing their accountant to classify all income paid that way as salary. Which may not be beneficial tax-wise to the entrepreneur.
Therefore, by being careful how they pay themselves. And trusting in their accountant. Can help ensure that the shareholders get the best mix of salary and dividends. That can help them minimize their tax payments when they start earning an income in their business.