When business owners have started earning enough Revenue in their business says Edmonton bookkeeping. That they are ready to start taking a shareholder draw out of their corporation. They may wonder if they need to take money out of their corporation as salary, or as dividends.
There actually is no clear answer to this question says Edmonton bookkeeping. And if anyone gives an entrepreneur an answer without digging deeply into their business and their personal circumstances. Are not understanding the circumstances enough to be able to accurately say.
Ultimately, the decision between dividends or salary or a mix of the two. Is figuring out how an entrepreneur can pay the least amount of taxes both personally. And in their business.
When it comes to dividends, Edmonton bookkeeping says that they are tax-free until they are taken out of the business. Salary on the other hand has a payroll tax applied to it. And the average Canadian pays 43% of their wages in taxes. Including income tax, CPP and EI.
therefore, the goal of entrepreneurs is often to pay less than this 43% average says Edmonton bookkeeping. Keeping in mind that the highest provincial tax rate in Alberta is 48%. Many entrepreneurs decided to start their own business. Simply because they wanted to increase their wealth, and pay less taxes.
It makes the question, how they should take their shareholder draw out of their corporation. Salary, or dividends. A question that is best answered by an extremely good accountant. Who will be able to look at the entrepreneurs personal circumstances, including all of their assets and liabilities. As well as all of their fixed and variable expenses as well.
The great accountants will also look at the circumstances of the business. And how much revenue it’s generated, to figure out what’s the best draw is. Whether it’s Sears, dividends or what mix of the two it should be says Edmonton bookkeeping.
The sooner an entrepreneur is able to find a great accountants that can help them with this. The sooner they’re going to be able to start saving the taxes that they need both in their business and in their personal life.
Ultimately, business owners will need to understand that not only is this a question best left for the Accountant says Edmonton bookkeeping. But the mix of dividends or salary is most likely going to change from year to year. Based on the ever-changing circumstances of the shareholder as well as the business.
Therefore it’s very important for entrepreneurs to notify their accountant. Anytime their personal circumstances change. Whether they have new dependents, gain or lose a spouse. Have more debt, or less debt in their personal life. All of these changes can make a huge difference 2 the type of salary or dividends that a shareholder will take out of the business.
By knowing that business owners should leave this decision up to the professionals. Can help them find the right professionals to work with. So that they can be assured. That they are paying the least amount of taxes. While taking the most money that they can out of their business.
Edmonton Bookkeeping | Should Shareholders Take Dividends
Since business owners may not be taking shareholder drawers out of their corporation initially says Edmonton bookkeeping. They often wonder when they should start. And how much they should be taking at a time.
While there’s no easy answer to that question. ultimately, the reasoning behind whether an entrepreneur will take a dividend, salary for a mix of the two. Is ultimately answering the question, how can a shareholder pay the minimal amount of taxes.
The average Canadian citizen pays 43% of their entire wage in taxes according to the Fraser Institute. And in fact, the highest tax rate in Alberta currently sits at 48%. In comparison, 37% of the remaining amount of money they make, goes towards all of their basic necessities including their shelter, and food.
Therefore it’s a very important question on how a shareholder can minimize their tax payments. Because it can be the difference between having to pay 48% in Alberta. Or paying 11%, which is the corporate tax rates currently enjoyed in Canada.
This is a 37% decrease in taxes. And is often the reason why entrepreneurs want to start their own business says Edmonton bookkeeping. However, without having a good accountant to help them answer that question. Business owners will probably not take the correct mix out of their corporation. Resulting in having to pay more taxes than they should.
In order for an accountant to figure out the answer to that question says Edmonton bookkeeping. They need to know the personal circumstances of the shareholders of the business. Some shareholders won’t need to take any shareholder draws out of their business for several years. Either because they have a lot of savings, they have another tea for job. Or, they I have a supportive family member that they don’t needs to bring in an income.
However, Edmonton bookkeeping says that’s not every shareholders circumstances. In fact, many entrepreneurs are in fact The Breadwinner in their family. Or the sole income provider in their family says Edmonton bookkeeping. They’re far not only do they need to take some money out of their business. They need to take a significant amount out. And take it out every month on a consistent basis.
Therefore, it’s extremely important that shareholders work with their accountant to figure out what’s their personal circumstances are. So that the accountant knows how much money they need to take out of their business. And how often they need to take it says Edmonton bookkeeping.
They will do that by having the share fill out a personal balance sheet and a personal income statement. Edmonton bookkeeping says that a personal balance sheet will include all of the assets that’s a business owner owns personally. It will also include all of the liabilities I’ll be a shareholder Services Edmonton bookkeeping.
Then the shareholder will fill out the personal income statement. This will show all the fixed payments the shareholder must make each month like rent and utility bills. And then the variable expenses, such as meals, entertainment and groceries. This will help the accountant figure out the debt servicing requirements they have.
This will help the shareholder figure out how much of a draw they must make each month. And how soon they need to start drawing that amount.