It is very important for entrepreneurs to keep track of all of their personal expenditures in their business says Edmonton bookkeeping, as well as all of the money that they have into their business from their personal finances. 80% of all entrepreneurs do this, therefore it is extremely important that they learn how to keep track of this money very carefully.
The shareholder’s loan account is set up in the balance sheets of the financial statements of the business that is designed specifically to keep track of all of the personal expenditures in and out of their business. It is extremely important that entrepreneurs learn how to track this carefully. At the end of the year, the amount that they have put into their business is subtracted from the amount that they have taken out of their business, and the amount that slept over they have to pay taxes on. If an entrepreneur is not careful about how they track that money, they could miss entering in some transactions that could impact how much money it looks like they have taken out of their corporation.
While it is not advised for entrepreneurs to have any personal transactions in or out of their corporation, since it is so often done, entrepreneurs need to ensure that they are doing it very carefully so that they can minimize the amount of money that they have to claim on their taxes. Is that when entrepreneurs are able to keep their finances separate corporately and personally, they can help the business save money, make it grow and thrive.
If the entrepreneur discovers at the end of the year, that they have taken more money out of their corporation then put in, they either need to pay that money back to the corporation, or they need to pay taxes on it. Edmonton bookkeeping says that it does not likely that an entrepreneur is going to be able to pay that money back because most often they have taken the money out of the corporation in order to live on it. Therefore, they should come up with an efficient tax strategy with their accountant, so that they can pay taxes on it, and reset their shareholder’s loan account back to zero.
Another strategy that some entrepreneurs try to use in order to minimize the taxes that they pay, is by leaving the amount in their shareholder’s loan account for the year. Their hope is that they can put more money back into the accounts over the next year, and bring their shareholder’s loan account amount down to zero, without paying taxes. This is an extremely risky maneuver are, because since the business owner and their corporation are considered separate entities, Canada’s revenue agency will consider the shareholder’s loan account a long-term liability and require the entrepreneur to pay interest on that amount. It is far more advantageous for an entrepreneur to simply claim that as income and then reset their shareholder loan.
When entrepreneurs learn how to manage their shareholders loan accounts, they can come up with an effective tax minimization strategy with their accountant.
Edmonton Bookkeeping | Why Business Owners Need To Track Shareholders Loans
If an entrepreneur has been keeping very careful track of all of the amounts going in and out of their shareholder loan account, Edmonton bookkeeping says they may find themselves at the end of the year has taken more money out of their business then put in to it. If this is the case, the next thing that they should do is set up an appointment with their accountant in order to help you figure out at efficient tax strategy, and how they are going to claim they have taken that money out of their business in order to pay the minimum amount of taxes possible.
One of the most important functions of an accountant says Edmonton bookkeeping, is coming up efficient tax strategies for entrepreneurs. Using the personal and business circumstances, accountants will come up with a plan on using a mixture of salary and dividends for an entrepreneur to claim how they have taken money out of their business. The goal will be to pay the least amount of taxes possible.
Entrepreneurs should understand that it is likely going to be a mixture of dividends and salary in their business, therefore, they should understand what the difference is between the dividends of their business and salary, so they can understand why their accountant needs to come up with a strategy. A dividend is an amount that the company has declared, in order to distribute profits. This is not considered an expense of the business, because the corporation has already profited that amount. It shows up on the balance sheet instead of the income statement.
Salary, on the other hand, says Edmonton bookkeeping is considered an expense of the corporation, and it does negatively impacts the bottom line of the business. While it is the most common way for an entrepreneur to get rid of the shareholder loan account amount, if an entrepreneur is also planning on selling their business within a few years, they may want to minimize the salary that they take, so that their profits can look as positive as possible for any potential buyers. Also, business owners should be aware that if they claim salary, there are also going to have to pay all the appropriate source deductions on the amount that they claim. This means the entrepreneur must take money from their corporation and pay to Canada revenue agency. They will need to pay the employer and employee portion of CPP, EI as well as income tax.
By coming up with an efficient tax strategy with their accountant, business owners can ensure that the amount of money that they have taken out of their business throughout the year, has the minimal impact as possible. While working on their year-end with their accountant, entrepreneurs should make plans on how to tax plan ahead of time, so that they can take money out of their business in a proactive and planned way instead.