It becomes very necessary for entrepreneurs to be tracking the money that they have taken out of their business, or put into their business as soon as they have done it says Edmonton bookkeeping. The reason why, is because all of the money that they taken out of their business needs to have taxes paid on it. Therefore, when entrepreneurs take money out of their business, they should keep track of it and what is called shareholders loan accounts. The reason why this is so important, is because the preparation and the business owner are considered separate legal entities.
First thing that entrepreneurs should understand is what I shareholders loan is says Edmonton bookkeeping. This is an accounts that up in the balance sheets of the business, to help keep track of all of the money that an entrepreneur has taken out of their business as well as all the money that they have paid into the business personally. This sits in the liability section of the balance sheets, and keeps track for an entire fiscal year of the money that an entrepreneur has taken out.
When an entrepreneur has reached their fiscal year end, there Edmonton bookkeeping company along with their accountant will calculate all of the money that they have taken out of their business, and subtract from that, the amount of money that they have put into their business personally. If an entrepreneur has put more money into the business then taken out, that additional money that the corporation owes entrepreneur can be taken out by the entrepreneur tax free. However, the money that they entrepreneur has taken out of their business needs to be declared as income, so that an entrepreneur can pay the appropriate taxes on that amount.
Many entrepreneurs wonder if it is possible for them to continue to all the corporation for the next year, mostly because they cannot afford to pay the additional taxes on the money. This is possible says Edmonton bookkeeping, it is actually not advisable. The reason for this is because since the corporation is considered a separate entity from the business, Canada revenue agency will often want to know why the entrepreneur has taken that low business, and is not paying interest. They may at their own discretion, clawback the interest in expect the business owner to pay all of the outstanding interest plus interest on that amount. In order for an entrepreneur to avoid getting additional charges and have to pay even more money, they should always ensure that they are clearing their shareholders loan account at the end of their fiscal year.
Once a business owner understands how important keeping track of all of their shareholder loans amounts are, they can ensure that there keeping track, so that they can come up with the strategy at the end of the year with their accountant the best way to declare that money on their personal tax return.
Edmonton Bookkeeping | When Entrepreneurs Need To Track Shareholders Loans
It is always very important for business owners to be tracking the shareholders loan amounts in their business says Edmonton bookkeeping. While best practices are for entrepreneurs to never make personal transactions into or out of their corporation, but sometimes it is unavoidable. When it is unavoidable, entrepreneurs need to ensure that they are keeping track of it and what is called a shareholder loan account, so at the end of the year, if the business owner has taken out more money than they put in, they can figure out what their accountant the best way to declare that money on their income tax return.
There are essentially two ways for an entrepreneur to claim that they have taken that money out of their business says Edmonton bookkeeping. Either through salary or through dividends. In order for an entrepreneur along with their accountant to figure out the best possible answer to that question, they need to sit down and look at their personal taxes as well as their business taxes and the accountant must know the answer to several questions such as if there depending on that money to support their family, or if they have additional income elsewhere. Bill also need to understand things like are they the soul owner of that corporation or do they have business owners, and if so what percentage of shares to the own. When accountants know the answer that question, they can figure out the best way business owners can take money out of their corporation. It is rarely hundred percent dividends are hundred percent salary, the most advantageous makes for most entrepreneurs is a specific percentage of each, depending on the circumstances.
Entrepreneurs need to understand what a dividend is, so that they know why their accountant must make a decision says Edmonton bookkeeping. A dividend is the amount of money that the company has declared they profited in the last year, and therefore can disburse the funds. Because it is not considered a expense of the corporation, it does not affect income statement, but rather it shows up on the balance sheet. It also does not negatively affect the bottom line, because it is a disbursement of the profit.
Edmonton bookkeeping says that a salary is how an entrepreneur to pay themselves as an employee. Therefore, all of the typical source deductions apply on this amount. This is counted as income on the business owners personal taxes, but they also must be able to afford to pay the income taxes, employer and employee portion of the CPP as well as the EI on the entire salary amount. While this is the most common way for an entrepreneur to disburse the shareholder loan account amount, business owners also need to understand that taking salary shows up on the income statement of the business, and negatively ask the bottom line.
When entrepreneurs are making the decision on how to claim the money that they have taken out of their business on their income taxes, there is that is to discuss this with their accountant, and make the decision based on a series of factors that the accountant will believe gives entrepreneur the best tax advantages.