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Incorporation Series: How do I pay myself if I’m incorporated?

incorporating small business, incorporation, Vancouver Bookkeeper(s), Tax Return Service Vancouver, Small Business Bookkeepers in Vancouver, Quickbooks, CRA

Balling! When your wallet fat from all that cheddar…..

 

You got 99 problems and your incorporated small business ain’t one? Great. Now it is time to pay yourself. Because you can.  Unlike sole proprietors, owners of a corporation no longer have to claim all of the income from the business as personal income.

“How do I pay myself if I’m incorporated”

You can pay yourself in a variety of ways.

1. Salary

You can add yourself to the company payroll and receive a T4.

This is a more expensive option as the company will have to pay all required payroll taxes on your behalf. Owners are exempt from EI but must pay CPP like other employees.

However, choosing this option will allow you to accumulate more room in your RRSP’s which you can utilize to save on personal taxes once you are making the big bucks.

Additionally if you are the lower income earner and need to deduct child care expenses from your taxable income you will need to be pay yourself with a salary.

2. Dividends

You can declare the money you have taken from the company as a dividend.

To do this you will need to get your bookkeeper or accountant to figure out how much money you took from the business throughout the financial  year and issue you with a T5 from the corporation.

Your personal tax rate will be lower than if you take a salary.

Important Note

As tempting as it may be to pay  yourself as a contractor WE DO NOT RECOMMEND THIS OPTION.

Anytime the CRA feels they are missing out on receiving taxes they feel they are entitled to ( which in this case would be payroll taxes)  they will, put quite simply, come after you!

For more information about the penalties for incorrect employee classification check out our blog post Employee VS Contractor – CRA Penalties for incorrect worker classification

In the end we recommend that you talk to your bookkeeper or accountant before you decide how you are going to pay yourself so that you can choose an option that is the most tax effective based on your income requirements.

If you are considering becoming incorporated and would like to discuss your options face-to-face with Teya our business consultant and tax expert you can make an appointment by calling us directly on  604-739-9536  or by requesting an appointment through our contact us page.

You can do it: File your taxes on time!

baby crying tax

Wah, scream, scratch. Tax season can make the best of us rip out our hair in a deadline frenzy, then hurl our bodies into a dark corner, where no one (*cough* CRA *cough*) can ever find us, ever, ever again.

Do this instead.

File and pay your taxes on time otherwise you risk serious consequences, especially if you owe the CRA money. And while the task can seem daunting at best, the CRA can be pretty reasonable, but, just like a hungry baby, they do NOT like to be ignored.

Income Tax CRA Deadlines

  • The personal income tax deadline is April 30 IF you have taxes owing. If you don’t have taxes owing, you are not required to file a return. However, we recommend that you do so anyway to get your refund and stay eligible for government benefits such as GST cheques, child tax benefits, premium assistance for MSP and Fair Pharmacare.

  • The income tax deadline for self employed individuals is very deceiving. If you don’t owe taxes you have until June 15th to file HOWEVER if you owe taxes you need to pay them prior to April 30. without doing your tax return you have no idea what is owing, so we recommend that you file your taxes for the April 30 to avoid interest.

GST

  • Annual GST payment and filing for  incorporated companies is due March 31st, 2016

  • Annual GST payment and filing for sole proprietors is due  April 30th, 2016 despite the fact that your remittance form will say June 15 as the due date. Please see above regarding deceiving deadlines for self employed individuals.

Employer Deadlines

  • T4’s must be filed with the CRA and given out to your employees before Feb 28 2016 if you want to avoid late penalties, which are $25/day.

What are installments??

So you have filed your taxes and discovered that you owe the CRA a lot more money than you expected. You feel your heart sink, you cry for a while and you curse the government for ruining your life.

Just as you finally begin to accept your fate and begrudgingly drain your bank account to pay off your mammoth bill, you receive an installment notification from the CRA. This notification informs you that due to the fact that you owed the government more than $3000 on your previous tax return you are now required to make quarterly tax installment payments (pay your taxes in advance) for the current year. If this isn’t bad enough the fine print will notify you that the first payment is due right away and that failure to pay the amounts requested by their due dates will result in interest being charged.

Although not every person with a bill over $3000 will receive this notification, you should plan to receive it so that you are mentally AND financially prepared.

Important Information about Installments

  • If you DO NOT get an installment reminder, you DO NOT need to pay installments, unless you would like to voluntarily.

  • Installment payments are typically due in March, June, September, and December.

  • You will get a statement of installments paid from the CRA that you will need when you file your taxes.

  • Installment interest will be charged if you receive an installment reminder and you fail to pay the amount owing in full by the due date.

Exceptions to the Rule

If you anticipate your income for the year is going to be much lower than your previous years income eg. you are going on maternity leave and won’t be working for 5 months of the year.

Contact the CRA and discuss this with them. If your tax owing at the end of the year is below $3000 then you won’t be penalized for not paying the installments.

If you need help filing your income tax please don’t hesitate to contact Homeroom SBS today.

Happy tax season!

Stretch your tax worries away

u-work-out-bruh-funny-cat-meme
Feel the burn? Power through tax season like a champ with these sassy moves.  Stretch your tax worries away. By Anja Konjicanin

“Close your eyes.”

We did.

The Homeroom team was told to hold open our hands. 
A small, metallic object grazed our skin: a golden key. And then we felt up an old record. It was the intro to the importance of consistency.
On a name tag, we jotted down reasons for wanting to keep up with personal goals. Our ‘why’. Then we keyed the crap out of the disc. One scratch at a time, like squirrelly kids colouring, we repeated the seesaw movement, up and down, until any lingering hope of listening to the record died. Our ‘why’, though, lived on….and this stare…err album, would serve as the perfect reminder.

Peter Frampton gem
Shout out to the curly-haired legend, Peter Frampton….

Ever since we keyed mint vintage vinyls, a harbour for consistency meant to remind us of the importance of remaining faithful to our goals (and that we slayed fine records), we’ve stuck to our office challenge: stretch every day. That is, get up every two hours for a break from the chair.

Great warm-up for tax season, no?

These movements may not be much. The consistency with which they are repeated makes all the difference toward a long healthy life. Because a little bit goes a long way with these office-friendly stretches that keep on giving!

I’m doing it for the forever healthy, happy, energetic body. What’s your WHY?

Sit Less, move more, do more, feel great:

1. Neck mobilization (6-8 reps): Keeping your chin up turn your neck side to side with a pause and hold on each side. With your chin pointed down toward your chest roll your chin from shoulder to shoulder in gentle half-circle.

2. Shoulder and upper back openers (6-8 reps): Arms are in front of your with forearms and palms together. Separate your arms keeping them at a 90 degree angle push back until you feel your upper back squeeze together. Keep your back squeezed raise your arms over head. Return to the first position and repeat.

3. Wrist and hand stretch and mobility (6-8 reps): Arms are extended straight in front of your body. Flex or roll wrists and hands as demonstrated.

4. Good morning twists (6-8 reps): Arms are crossed against your chest. Keeping your head up and back straight hinge at the hips moving your chest toward the ground until you feel a stretch up the back of your leg (hamstrings). Hinge up to standing erect pressing your hips forward until you feel your bottom (glutes) flex tight. Then standing straight and tall twist to the right, return to the middle and twist left. Start at the first position and repeat as directed.

5. YTUW Back, Glutes, and Hamstrings Hinge (3 reps): Standing straight and tall push your glutes out (stick your bottom out). Raise your hands above head then move your arms down into a “Y” position, then “T”, “U”, “W”. Return to hands above head. Hinge forward keeping your head up and back straight until your hands come to rest on your desk or other flat surface. Slide your fingers forward on your desk feeling a stretch down the back of your body. Return to standing and repeat as directed.

6. Split Stance Tilt for calves and hip flexors (2 reps pers leg): Part 1 – Standing tall with feet shoulder width apart. Step forward into what would be a natural stride keeping your back heel pushed down to the ground. Push your hips forward toward the front foot keeping your chest high and your head up. Part 2 – In the same stance look up and fully arch your back and tilt your hips up and away from your back leg. Return to standing shoulder width and repeat with the other leg.

7. Ankle circles (2 reps per side): With your toe pressed into the ground make small circles rolling your ankle in one direction and then the other.