When entrepreneurs are proprietors, which is basically a person that earns income aside from the regular, taxed income says Edmonton bookkeeping, there are several things that they need to keep in mind when they are working on their personal taxes. By understanding what they can claim on their personal taxes as a business expense, can help mitigate the amount of taxes that they pay to Canada revenue agency. Since the personal tax rate in Alberta maxes out at 48%, and the average Canadian pays 43% in taxes, it makes a lot of sense for proprietorships, who pay the personal tax rate instead of the small business tax rate, should claim as much as they can on their personal tax return to minimize those taxes.
In order to get to the threshold where they can start claiming the small business tax rate which is 11%, entrepreneurs need to incorporate their business. There are many reasons why entrepreneurs would benefit from incorporating their business, however, the most common time that a business owner would want to incorporate their business, is when their proprietorship start earning a minimum of fifty thousand dollars a year in their business. The reason for that is because at that amount of money, a business owner is paying more in taxes to be a proprietor then the cost of incorporating their business says Edmonton bookkeeping. Not only do they have to pay for the cost of incorporating, they also have to pay the monthly filing charges, and year-end tax charges. Also, as a business that is incorporated they will have to continue to pay personal tax, but also pay GST in their corporation, payroll taxes, as well as federal and provincial corporate tax. Once a business is earning at least fifty thousand dollars a year, these expenses become less than the taxes that a business owner is paying on the fifty thousand dollars.
Other reasons why an entrepreneur might choose to incorporate their business in addition to the tax savings, is because it protects their registered trade name. Many entrepreneurs may not realize, that registering their trade name at corporate registries is not enough to protect that name, they actually have to incorporate their business in order to ensure that nobody else can use that business name. Incorporating a business also limits the liability a business owner has in their business. Many entrepreneurs do not understand that they could potentially get sued says Edmonton bookkeeping in their business even if it is part-time as long as it is a proprietorship. Not only are entrepreneurs at risk, but all of their personal assets are also at risk including their home, their vehicles and their savings. This is especially important to know, if an entrepreneur has a family home where they have a spouse and children living, they might want to consider not putting the home where their family lives at risk if there sued in their business.
By understanding proprietorship, entrepreneurs can start to make a decision on how they would like to pay their taxes.
Edmonton Bookkeeping | What Proprietors Can Claim On Personal Taxes
Proprietors are entrepreneurs who own a business that is not incorporated says Edmonton bookkeeping. But also, if anyone earns money in their business that is not taxed income, can be considered the owner of a proprietorship. Whether they are operating a business that there hoping to grow into a full-time organization, or if they just plan on continuing to earn money on the side in their business, they should understand that this can earn them the ability to claim certain business expenses on their personal tax return.
The first thing that entrepreneurs of proprietorships should keep in mind, is that their filing date is different once they are the proprietor. Since a proprietorship is a business that is legally tied to the business owner and the business owner’s tax obligation, proprietorships must file their taxes along with the business owner ís personal tax return. They need to have a separate form, but they need to file them collectively. However, Edmonton bookkeeping says that they do not have to file on April 30 like all other Canadian citizens, because they get an extension. Canada revenue agency allows owners of proprietorships and their spouses to file their taxes by June 15. The additional forty-five days is in order to help entrepreneurs prepare two filings, one for their proprietorship and one personally. Business owners do need to remember though that they will be earning interest on all taxes owed to Canada revenue agency as of April 30, so if they want to avoid that 1% interest charge, they might want to consider arranging to pay their taxes in installments so they can avoid that charge.
Something else for entrepreneurs to consider when they become a proprietorship is if they need to collect GST. Edmonton bookkeeping says that the threshold that business owners need to reach in order to require collecting GST is an income of thirty thousand dollars in their business per year. When a business owner reaches that amount, they need to apply for a GST number. Business owners can apply before that threshold and start collecting and sending GST to the government, but it does not become a mandatory requirement until they reach that threshold.
In order to help an entrepreneur minimize the taxes that they pay as a proprietor, they can claim business expenses on their personal tax return. Expenses like the business portion of their travel, rent from their home office, mileage and meals, and entertainment. By claiming as much of these as possible, business owners can minimize the taxes that they pay in their proprietorship. This means entrepreneurs need to be keeping track of all of their mileage and travel, meals and entertainment and keep receipts on everything.
Business owners who are proprietors can claim business expenses personally, in order to minimize their taxes, and the threshold for two can become a proprietor is very low, so people who like to save taxes, should look into what they need to do to consider themselves a proprietor.