One of the conversations that a business owner is most likely going to have with their accountant when they are talking about their business plan is if they are going to set up a holding company for their business says Edmonton bookkeeping. This can be an extremely beneficial corporate structure that can help a business owner reduce risk as well as minimize the taxes that they have to pay on the profits from their business. In order for the accountant to complete the financial plan for an entrepreneur, their white need to know if this is the corporate structure that a business owner wants to utilize.
While a lot of the entrepreneurs that are brand-new in business may decline to utilize this structure because they understand that they have to file two year ends, which increases the work as well as the accounting and bookkeeping costs. But, utilizing this corporate structure demise taxes can often save an entrepreneur more in taxes than they would pay in increased accounting fees and increased fees from their Edmonton bookkeeping company.
One of the biggest benefits of having a holding company as well as and operating company is that an entrepreneur can transfer money between both corporations tax-free. In fact, an entrepreneur can transfer money between their corporation and any related company tax-free. What counts as a related company says Edmonton bookkeeping are companies that are owned in whole, or in part by any shareholder that owns at least 25% of the entrepreneurs business.
This transferring of money between related companies can serve as a mechanism to transfer the prophets of the operating company to the various shareholders tax-free. Then, those shareholders can decide the best way to withdraw those funds from their own corporations, or how to invest that money themselves. By doing this, business owners can avoid the up to 48% of the personal tax that they may be subjected to by taking a salary or dividends out of their business.
One of the biggest challenges that entrepreneurs will have, is ensuring that they are keeping an accurate record of all intercompany transactions as well as intercompany bank transfers. Edmonton bookkeeping company says that this is very easy to make errors on, and can end up causing the financial statements from both corporations to be wrong. Therefore, is owners need to be very careful that they are keeping track of all transactions there he carefully and communicating with their Edmonton bookkeeping company often.
By utilizing this corporate structure, business owners can protect themselves from paying a significant amount of taxes and will allow them to not only accumulate wealth for themselves but build keep more money in their corporation that they will then be able to use to invest back into their company so that they can grow their business and to become successful. By speaking to their accountant about why it is important to have a corporate structure with a holding company, business owners can make the decision that is best for them and their business.
Edmonton Bookkeeping | Using Holding Companies For Tax Deferrals
Many entrepreneurs struggle with understanding basic business finances says Edmonton bookkeeping. In fact, into it, who is the company that makes accounting software QuickBooks did a survey to find out how financially literate small business owners and entrepreneurs work. The questions asked participants what the role of a balance sheet was, what our accruals and how to improve their cash flow for example. 82% of the respondents scored less than 70% on the test. Since many entrepreneurs struggle with understanding business finances, they may not understand the benefits of setting up a holding company for their corporation and missing out on the benefits.
By setting up a holding company to own the shares of their operating company, this makes the business owner and armís-length shareholder. One of the benefits of this is allowing an entrepreneur to reduce the risk they have in their business. When the reasons why a business owner may choose to incorporate in the first place, is to limit their own liability, by allowing the corporation to take on that responsibility. However, this does not protect the business owner’s assets says Edmonton bookkeeping.
By setting up a holding company, it does protect their assets as well as their profits. By having their holding company own all of the assets such as the building, for example, protects those assets from creditors and liability claims that may impact the business. Similarly, if an entrepreneur transfers the prophets of their operating company to their holding company, it effectively makes those profits out of reach of creditors. In case of a liability claim against a business, by protecting the prophets but putting it into the holding company, means that those funds cannot be touched if the business is found liable.
Another benefit of having a holding company as well as and operating company is giving a business owner as well as their accountant a mechanism to delay paying the business owner in case they have an overdrawn shareholders loan account. However, says Edmonton bookkeeping this is only possible if both corporations have different year ends.
In order to maximize all of the benefits of having two corporations, a business owner needs to ensure that both corporations have different corporate year ends. This is possible, but will require their Edmonton bookkeeping company to keep very good record of their finances, so that when their accountant goes to do their year-end, they will be able to ensure the accuracy of the first year and that is done because it will be completed before they start work on the second year-end. Therefore, ensuring that their Edmonton bookkeeping company is ready, willing, and able to do that is of paramount importance.
By understanding all of the benefits that can come with utilizing a parent company and an operating company can ensure that business owners are setting up the corporations correctly, for the right reasons, and are prepared to do what they need to ensure the accuracy of their finances. Once they do this, they will be able to ensure that they are taking full advantage of the dual corporation structure for their business, allowing the mechanism to grow.