Holding companies are often called parent corporations, or limited liability companies say Edmonton bookkeeping. And there may be several reasons why an accountant would recommend an entrepreneur use one as part of their corporate structure. There are many benefits that can come from using this structure, which can be very beneficial to entrepreneurs. The most common reasons is to help minimize taxes that a business owner has to pay.
One of the most significant ways that business owners can minimize the taxes that they pay, is by using their holding company and their operating company to transfer money back-and-forth schism Edmonton bookkeeping. As long as they are Canadian corporations, business owners can transfer money between their related corporations tax-free until the dividends are issued from the corporations to the business owner.
By giving a business owner and their accountant the mechanism necessary to flow income between corporations can help minimize the amount of taxes that a business owner ends up paying says Edmonton bookkeeping. However, very important that a business owner is keeping an extremely good record of these intercompany transactions because if mistakes are made accounting for intercompany transactions, it can end up creating bookkeeping problems for the corporations.
Not only can a business owner transfer money between corporations, but they can transfer money between any related companies. Edmonton bookkeeping says a related company is a corporation that a business owner or their spouse owns at least 25% of different corporations. Or, if they have a partner who owns at least 25% of their corporation, owning another corporation separately. All of these are considered related companies, and intercompany transactions can happen between all of them.
Another way that business owner can save taxes, is by ensuring that both of the corporations have a different year-end. Edmonton bookkeeping says that by having different year ends, this gives business owners and their accountants the mechanism they need in order to delay paying the business owner. This way, a business owner can avoid claiming that they have taken money in a particular year, and pay minimal taxes. By then after that year-end, they can do it intercompany transfer, and get paid from the other corporation can give them that delay they need to minimize the amount of money that they can claim that they have made.
When a business owner understands all of the tax benefits that can come from owning two corporations, one holding company, they can plan with their Edmonton bookkeeping company and their accountant what they going to do to make the most of those tax benefits. When they do this, they can benefit their business and themselves, and often offset the cost required to complete two separate year ends with their accountant. However, business owners need to understand the benefits, and then ask their accountant to set their corporate structure up this way, and then be sure that they are medicating with their Edmonton bookkeeping company regularly, and thoroughly to ensure that they end up with the most accurate financial statements in their business.
Edmonton Bookkeeping | Tax Benefits Of Holding Companies
Many business owners struggle to understand basic business finances says Edmonton bookkeeping. Intuitís, the makers of QuickBooks surveyed a number of small business owners in order to quiz them on basic business financial literacy. Respondents were asked about business finances such as what the role of a balance sheet is, what our accruals and how they can improve their cash flow. They discovered that 82% of all of the business owners that responded scored lower than 70% on this test. Therefore, when business owners struggle to understand their business finances, they may not want to complicate matters by adding another corporation. However, by understanding the value can help them make the right decision.
One of the most significant benefits that business owners can get from having a holding company as well as and operating company is tax benefits. This is the reason why many accountants recommend business owners to set up separate corporations. It is also the reason why it makes sense fiscally to do the books of two separate corporations.
The benefits that business owners can get from realizing a holding company, also known as a parent company or limited liability company is very numerous. They can reduce the risk that they have in business. Edmonton bookkeeping says that many business owners believe that just having a corporation can limit their liability, that liability can be further reduced by using the holding company to own the operating company, causing the business owner to not own the operating company, protects them through a variety of circumstances.
It also makes it much easier for succession planning if an entrepreneur is starting to plan how they are going to leave their business, and have one of their children start running it. It also gives them flexibility for growth, allowing them the mechanism to own more than one corporation, by keeping them separate from each other. Even if an entrepreneur is not planning on buying or selling assets, utilizing a holding company makes this possible and easy to keep separate.
How a holding company makes its money, is through buying and selling assets, as well as charging the operating company for its management services. If it makes over thirty thousand dollars in a year, a business owner also needs to get a separate GST account because each corporation is considered its own separate legal entity.
When a business owner understands all of the various benefits from utilizing and operating company and a holding company, they can discuss with their Edmonton bookkeeping company an accountant on whether this structure is beneficial for them, and whether it warrants a business owner incurring the cost of the bookkeeping for two corporations, and filing two year ends. By discussing the pros and cons with their accountant can help business owners make the decision that is right for them so that they can grow their business as beneficially as possible.