One of the first things that entrepreneurs need to learn in their new business says Edmonton bookkeeping, is how to keep track of all of their personal expenditures using company money. This is so important, because all of the money that an entrepreneur takes out of their business, needs to have taxes paid on it. By keeping track of all of the money from their corporation that an entrepreneur uses personally, as well as all of the money that they personally put into their business, entrepreneurs can help manage the money that they eventually owe back to their corporation at their fiscal year end.
All of the various transactions that entrepreneurs need to consider as shareholder transactions, is anything that has an entrepreneur using business money for personal purposes. Edmonton bookkeeping says examples of this would be if an entrepreneur uses the business debit card to take money out of a cash machine, if they use the corporate business card to buy groceries. Also, if an entrepreneur does things like take money out of their personal savings account in order to pay for a loan payment or an asset, or if they use their personal credit card to pay a business bill. All of these need to be kept track of it very carefully and what is called a shareholders loan account.
At the end of the year, along with their Edmonton bookkeeping company, entrepreneurs will calculate how much money they have put into their business personally as well is taken out of their business personally as well. If they have taken out more money than they put in, that is money that they either need to pay back to the corporation, or simply claim as income on their taxes, and pay the appropriate amount of taxes on that.
Some entrepreneurs believe that they can bypass paying taxes, and leave the amount that they owe their corporation in their shareholders loan account. Edmonton bookkeeping says that their goal is to more money back into the business over the course of the next year, and avoid having to pay taxes on that. However, is an extremely risky move because the longer an entrepreneur always their corporation, the more likely it is going to be considered a liability to the business. If that happens, CRA can at any time at their own discretion clawback that interest and expect the business owner to pay all the interest that they over that loan.
It is a far less risky venture for entrepreneurs to simply claim that as income, And pay the taxes that they owe on it. When they keep very good track of all of their various transactions in and out of their business that is personal, they can end up with a very accurate shareholders loan account at the end of the year, which they can then use their accountants to come up with an efficient tax strategy. Entrepreneurs should get into the habit of keeping very good track of all of their personal finances in and of their business, so that they can come up with the best tax strategy possible.
Edmonton Bookkeeping | Why Shareholders Loan Accounts Are So Important
Since 80% of all entrepreneurs end up using business finances for personal purposes, or using their personal money to finance their business says Edmonton bookkeeping, entrepreneurs need to learn how to keep track of all of their shareholder loan account amounts very carefully. At the end of their fiscal year, if an entrepreneur has ended up taking more out of their company then paying into it, they need to efficiently.
Edmonton bookkeeping says that entrepreneurs need to get together with their accountant every year, in order to discuss the best and most tax efficient way of claiming that shareholders loan account amount. Their accountant will take several things into consideration including the current situation of the corporation as well as the entrepreneurs personal circumstances as well. Taking things into consideration like what are the entrepreneurs thinking of selling the business, if they are the sole revenue generator for their family, and if they have on their business partners.
Once the accountant has met with the entrepreneur in order to figure out the circumstances of their business and personal, Edmonton bookkeeping says that they will come up with a strategy using a mixture of salary and dividends to claim that amount that they have taken out of their business. It is rarely an effective tax strategy to claim on a percent of the income that they have taken of their business as salary, or hundred percent as dividends.
Entrepreneurs should understand that a dividend is treated very differently as salary. Edmonton bookkeeping says that dividends referred to the amount that the company has declared to distribute profits. Dividends are going to show up on the balance sheets of the business and not the income statement, because it is not considered an expense to the business, but the earnings of the corporation.
Salary on the other hand says Edmonton bookkeeping is very different. It is considered an expense of the business, and it negatively impacts the profits of the business. This is most important if an entrepreneur is planning on selling the business within the next few years. In order to get the most money they can for their business, they are going to want to show the best profit for the most number of years to potential investors. Also, entrepreneurs should also keep in mind that whatever amount they claim as income in salary, is going to need to have the appropriate source deductions sent into Canada revenue agency as well. That means income tax, the employer and employee contribution to CPP, as well as EI need to be accounted for.
When entrepreneurs come up with an efficient tax strategy with their accountant, they going to be able to clear their shareholders loan account balance back to zero. Their accountant will help them come up with the most tax efficient strategy, so that they can pay the minimum amount of taxes and impact their business in the least amount.