One of the biggest concerns of a shareholder when they start their business says Edmonton bookkeeping. Is if they’re going to be able to start taking a salary. and if so, when they can start paying themselves.
Some entrepreneurs start their business, needing to take money out of their business immediately. And some might never need to take money out of their business. And so they can wait until the business is earning a lot of Revenue.
Each personal circumstance of the business owners are different. As is the circumstances of the business itself. And therefore, only accountants will be able to figure out the best way for shareholder to take money out of their business.
Apparently, in order to answer that question. Edmonton bookkeeping says an accountant is going to need to know the personal circumstances of the business owner. That will help them determine how much money they need each month. And how much revenue the entrepreneur will need to make each month to pay that amount.
In order to help the accountant know what the personal circumstances are of the shareholder. They need to do a personal balance sheet and personal income statement of the shareholders. Based only on their personal information. This is in order to find their personal net worth. As well as all of their debt.
The personal balance sheet says Edmonton bookkeeper will list all of the assets that they have personally first. This might include their house, any Vehicles they might own, vacation property, rrsps and tax free savings account to name a few.
The second section of the personal balance sheet will be the liabilities that the shareholder has. This would include their mortgage, their car payments, perhaps their credit card balances. If they have a line of credit with an outstanding balance, or any taxes that are owed. And even loans from family members.
What this is going to show an accountant, is the number of resources they have at their disposal. That they can take out of their personal life and put into their business if that is absolutely necessary.
the personal income statement says Edmonton bookkeeping Will show all of the fixed expenses that a shareholder must pay every single month. Such as rent, car payment, utility bills, as well as phone and internet. These must all be paid every month no matter what. And are typically going to be around the same amount every single month
It will also show the variable expenses of the shareholder next. These are the expenses that a business owner we’ll have every month. But they might not necessarily be fixed. Such as the amount they spend on groceries, their entertainment and meal budget, and any additional expenses that they have. Maybe for getting their hair and nails done, a gym membership, or clothing allowance.
When an accountant is able to figure out the personal circumstances of the shareholder. They will be able to understand how much money a shareholder is going to need to take over the business every month. In order to survive.
Whether they take it out as dividends, salary, or a mixture of the two. Edmonton but keeping says that also will be up to the accountant. Based on what they discover from this exercise.
Edmonton Bookkeeping | Should Shareholders Take Salary
When shareholders starts their business says Edmonton bookkeeping. One of their first questions to their accountant maybe how much money can they take out of their business. And when can they start earning a salary.
Business owners needs to realize, that how they get paid. Whether it is dividends of the corporation, or if they take a salary. Or if they take a mixture of the two. Is essentially helping them save on their taxes. The average Canadian pays 43% of all of the wages that they bring into their household in taxes. And this is according to the Fraser Institute. The taxes that they pay are a mixture of income taxes, as well as CPP and EI as well.
Alberta’s highest tax rate is currently sitting at 48%. And the corporate rate in Canada is only 11%. Edmonton bookkeeping says this is an up to 37% tax savings. That shareholders can enjoy simply by owning a corporation. As long as they have a great accountant.
They’re accountants will be able to help a shareholder figure out what mix of salary or dividends they should be taking out of their corporation. So that they can maximize the tax benefits.
While salary will be taxed at the typical tax rates says Edmonton bookkeeping. Dividends are tax-free. Until they are taken out of the corporation. Therefore it’s very important how and when an entrepreneur takes these dividends out of the corporation. To minimize on the taxes that they have to pay.
If an accountant recommends that an entrepreneur either takes all salary, all dividends. Or even 50% of each. They probably are not understanding the entrepreneurs personal situation enough. Or the circumstances of the business either.
It’s not necessarily a clear-cut equation for an accountant to figure out the best way that a shareholder should take their draw out of the corporation. However, shareholders may still have to take money out of their business every month in order to live. So that’s their accountant will have to figure it out at the end of the year.
They might take the money out through an e-transfer, or buy a check says Edmonton bookkeeping. And if they write a check to themselves. One of the most important things that they should be ensuring that they do. Is not right on the memo line but it is for salary. If they do this says Edmonton bookkeeping It will force the accountant to use that income as salary. Because the paper trail will Clearly say that’s what it is used for.
accountants would also recommend that entrepreneurs figure out approximately how much they will need every month. And then take that out only once a month. And in a round number. So whenever they see that number come up. They will know that that is a shareholder taking a drop of the corporation. So if they need $3,452.23 they might want to take out $3,500.
Buy clearly understanding that this is a complex issue. That requires a great accountant says Edmonton bookkeeping. And help an entrepreneur know that they need to hire one as soon as they can after starting their business. To increase the chances of getting the money they need to live. And minimizing their tax bill.