Many entrepreneurs struggle with understanding their own business finances says Edmonton bookkeeping. This is why when they are accountant recommends setting up a holding company for their business, entrepreneurs do not really understand what they are saying, and when they hear it is going to increase their accounting and bookkeeping costs, they decline. While it is true that some costs can increase, the taxes that a business owner should be able to save by utilizing this type of corporate structure will offset the costs associated with it, and allow a business owner not only to save taxes but accumulate wealth.
Since the reason why many people go into business ownership is in order to increase their wealth, this is extremely important for business owners to actually get educated in, and understand before making the decision. One of the most significant benefits of utilizing a holding company is to minimize the taxes that they have to pay. The way this happens says Edmonton bookkeeping is by being able to transfer money tax-free in between corporations. How this can save tax is when a business owner earns profits in their operating business, if they pay themselves a salary or dividends, they will have to pay personal tax rate up to 48% on those earnings. The average Canadian is actually paying 43% in taxes.
However, if a business owner transfers the profits from their operating company to their holding company, not only can they do that tax-free, but the operating company then owns the prophets of the business. That way, a business owner can strategize with their accountant and their Edmonton bookkeeping company on the best timing to withdraw those funds to minimize taxes. Or, a business owner can simply invest the money in order to minimize the taxes that they pay on it. This way, they are increasing their wealth by investing money, and they do not have to pay taxes in order to do that.
This is the most common reason why accountants will recommend business owners set up a holding company. However, business owners also should take into consideration that these intercompany transactions can happen between more than just the business owners holding company and operating company. In fact, any shareholder of the corporation that owns at least 25% of the corporation, may transfer that money to any other corporation that they own at least 25% in. Therefore, all of the shareholders of a corporation can all own a holding company, and all minimize taxes this way.
Since minimizing taxes is one main goal of many business owners, learning how it is done is an important determining factor that can help business owners make the right decision for them in their business. By understanding how much taxes they can save can help justify the cost of an increased Edmonton bookkeeping bill and accounting bill. By doing this, entrepreneurs will be able to grow their business and become successful with the money that they are saving in taxes.
Edmonton Bookkeeping | What Are The Advantages Of Using A Holding Company
one thing those business owners may hear from their Edmonton bookkeeping company that can be very beneficial to utilize a holding company and their business. However, if they do not understand what this means, they may choose to not set up their corporation this way, and not only pay more in taxes but are unable to enjoy a lot of the benefits that this structure can bring them.
In addition to being able to minimize taxes, there are many other benefits of utilizing a holding company in their corporate structure. One of the benefits that business owners can enjoy is protecting their assets and their profits. By setting up a holding company that will hold all of the assets that a business owner acquires, can protect those assets from creditors as well as from liability claims in case an entrepreneur gets sued says Edmonton bookkeeping. In addition to protecting assets, a business owner can also protect their earnings by transferring the profits from their operating business to their holding company. This way, matter what happens to their business whether it is sold, sued, or business owner shuts it down, all of their assets and money is protected.
A business owner can use a holding company in order to help them concentrate their assets, which is useful for succession planning, as well as flexibility for growth and development as well. However, business owners also need to take into consideration that this structure means that they have to be very organized with their finances and transactions to ensure that the rights transactions are being credited to the right corporation.
Edmonton bookkeeping company says that these types of intercompany transactions can very easily have errors that can affect the accuracy of the financial statements for both corporations. This can impact an entrepreneurís ability to make financial decisions in their business. Therefore, business owners need to not only keep very clear and accurate records, they also need to ensure that they are getting their bookkeeping done every single month so that all transactions for both companies can match up every single month.
Not only does ensuring the transactions at up for both corporations on a monthly basis important for ensuring the accuracy of the financial statements, but what it also does says Edmonton bookkeeping ensures that the year-end finances are able to be done quicker, and have a greater chance of being correct right away. This is very important, especially if both corporations have different year-end dates. An accountant may set up the corporations with different year-end dates in order to give an entrepreneur the mechanism needed to delay paying themselves if they have in the overdrawn shareholder loan account.
By understanding all of the benefits associated with utilizing a holding company and there corporate structure, business owners can not only make the right decision, but know what they have to do on ongoing basis to ensure the accuracy of their financial statements, so that they can continue to using the information they have to grow their business.