When entrepreneurs start their business says Edmonton bookkeeping. They may understand that they might not be able to take money out of their business initially. But that is going to be a goal, not just to take money. But to save money for their future as well.
However, how much money a business owner will be able to take out of their corporation. And when they are able to take it. Will be a question that’s they need their accountants to help them answer.
Ultimately it’s going to come down to a question of When can their business sustained paying shareholders? And when does a shareholder needs to start getting paid? And finally, how much money does that shareholder needs to take out of the corporation. In order to pay their bills and live?
Edmonton bookkeeping says that shareholders have two options when it comes to taking money out of their corporation. They can either take it as salary. Or they can take it as dividends. Or says Edmonton bookkeeping, they can take it as a mixture of both.
That’s going to be for their accountant to designate as their corporate year-end. But in the meantime, once they have their approval from their accountants. Entrepreneurs may take shareholder draws in the amount that they have been specified too.
However, some business owners make critical errors when they are taking money out of their corporation. And they might write themselves at check. And in the memo line simply put the word salary. And the reason why this is a mistake says Edmonton bookkeeping.
Is because it will force the accountant to designate those funds as salary. The reason why that is not beneficial. Is because salary gets taxed at the highest tax rate that a shareholder is required to pay. Which in Alberta tops out at 48%. That’s a significant amount of money that an entrepreneur won’t see due to taxes.
However, some entrepreneurs also make the mistake of using payroll tables to pay themselves and other shareholders of the corporation. Against Edmonton bookkeeping. The reason why this is a mistake, is because once a shareholder takes salary. The accountant can’t classify it as anything else.
Therefore, an entrepreneur needs to discuss with their accountant how much their monthly draw is going to be. And when they can start taking it out of their corporation. And whether they take it as an e-transfer, or if they write themselves a check. By avoiding putting the word salary on the check. Can help ensure that the accountants can classify it as whatever is most tax-efficient during their corporate year-end.
The sooner an entrepreneur can find a great accountant. Who is going to help them save as much taxes as possible. Is The Sooner an entrepreneur will be able to start saving money. In the form of taxes. So that they can not only earn money. But so that they can start accumulating wealth for their business. And earning money for their future.
Edmonton Bookkeeping | Should Shareholders Use Payroll Tables To Get Paid
Often, shareholders use payroll tables in order to pay themselves and other shareholders says Edmonton bookkeeping. And the reason why this is a mistake. Is because once an entrepreneur classifies a payment as salary, either through payroll tables, or through writing salary on a check they write themselves. Their accountants will not be able to classify that money as anything other than salary. Which can impede their ability to create tax shelters for the shareholders.
In fact, the average Canadian pays 43% of their wages and taxes according to the Fraser Institute. And in Alberta, the highest tax rates is currently 48%. Compared to that, is the tax rates that corporations pay, which is only 11%. This is often the benefits of becoming an entrepreneur. That they can enjoy saving taxes through a variety of methods.
So classifying all or most of the drawers that they take out of their corporation as salary. Will not help them accomplish that goal, saving money, or accumulating wealth. Due to saving taxes.
However, what percentage an entrepreneur can take out of their corporation as dividends. And what’s an entrepreneur can take as salary. Is going to be a question that’s their accountant answers after they finish their corporate rear end. And take into consideration not just the finances of the business
but also the personal finances of the shareholders of the corporation. Edmonton bookkeeping says the reason why it’s important for an accountant’s to know what’s the personal circumstances are of each shareholder. Is still not accountant knows exactly how much money they need to get paid. In order to meet their financial obligations.
But as well, how much revenue the business needs to make in order to provide that to each of the shareholders. Also, the business owner might be required to take money out of their personal life to put into their business if necessary. And understanding each of the shareholders personal circumstances, financially. Will help them accomplish that.
Therefore, Edmonton bookkeeping cents and accountants will ask each shareholder to complete a personal balance sheet. As well as a personal income statement. This will help them figure out their net worth. And what debt servicing they need to honour.
A personal balance sheet is going to show an accountant what assets the shareholders have, versus their liabilities. For example, they might have a house, their car and some tax free saving accounts under their assets. While their liabilities might be the mortgage on their house, and credit card debt.
The personal income statement will show all of the expenses that a shareholder incurs throughout the month. Both fixed, and variable. The fixed expenses are typically what a shareholder must pay, such as their mortgage or rent payments. Their utility bills, and things such as credit card debt, or taxes that they owe.
Their variable expenses says Edmonton bookkeeping aren’t necessarily expenses that can be skipped. Such as grocery expenses. But some of them might be, such as a gym membership, or meals and entertainment for example. Going through this exercise will help shareholders understand what things they can live without. If absolutely necessary, So that they can reduce their shareholder draw in an effort to make their business successful.