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.

Incorporation Series: I’m incorporated. Now what?

Vancouver Bookkeeper(s), Tax Return Service Vancouver, Small Business Bookkeepers in Vancouver, Quickbooks, Incorporation, Incorporating Small Business Vancouver

Big yellow sign, you feel me, bro….

You did it. You put months of heavy contemplation into concrete action and incorporated your small business. *Confetti drop*

Now what?

We hope that this post will help guide you to successfully move forward with your new corporation.

First things first

You need to pick a date when you will start operating under the corporation. Usually the 1st of your chosen month is recommended. Once you have picked a starting date you need to allow around 2-4 weeks to get the following accomplished;

  • You need a completely new set of books/accounting records.

    • Your old books cannot be rolled over to your new company, no if’s but’s or maybe’s. The time of the year when you were a sole proprietor will be included in your personal tax return, while any business expenses that were incurred after you became incorporated will be included in your corporate tax return.

  • Figure out how you are going to organize all the new paperwork

    • Now that you are  incorporated the amount of paperwork that you will need to deal with is going to increase tenfold so you need to have a good filing system in place to manage everything.

What you need to change

There are three very important areas of your business that you will need to change.

  1. Since a corporation is a separate entity, you now need to apply for all new tax registration numbers including GST, PST & payroll numbers.

  2. You will need to apply for a new WorkSafe BC account. Make sure to include your current WCB number so that you get your rate information transferred over.

  3. You will need to open new bank accounts and apply for a new company credit card.

TIP: While doing this we recommend that you utilize this time to develop a relationship with your banker as it will come in handy later.

Other Important Reminders

  • Remember to put your new GST and PST numbers on your invoice template

  • Track your accounts receivable and accounts payable separately before and after your designated start date for using your corporation.

  • Inform your insurance company to update the policy with your corporate business name.

  • You may need to put some of your personal cash into the corporate bank account. Make sure that you track this.

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.

Incorporation Series: Should I Incorporate?

Vancouver Bookkeeper(s), Tax Return Service Vancouver, Small Business Bookkeepers in Vancouver, Small Business, Grumpy Cat, Quickbbooks, Incorporation, Small Business Incorporation

To incorporate or not to incorporate?

The answer is not so clear-cut. And the looming questions can buzz around your head like fruit flies at a gravesite of a discarded lollipop. It’s enough to turn even the jolliest person into Grumpy Cat.

There are several factors to consider, so before you turn into a furry creature cursed to look like the angry emoticon (>_<) for all eternity , let us provide you with the tools you need to weigh up the pro’s and con’s of incorporating. Let us answer that lurking question experienced by most successful business owners ‘should I incorporate?’ and help easify your life!

Positives of incorporating

Limiting Liability

When you are a trading as a sole-proprietor your personal assets can be seized to pay your business debts which is a scary thought that can place unwanted stress on you and your family.

If you incorporate your business it becomes it’s own separate entity in terms of liability and financial responsibility.

This means two very important things. Firstly, it means that although your business is still liable for any debts it incurs, as a shareholder you are not personally liable unless you have given a personal guarantee.

Secondly, it means that the business essentially has an unlimited lifespan. Unlike a sole proprietorship which begins and ends with the owner, corporations can continue to exist regardless of ownership changes.

Tax savings

Additionally businesses that trade as a corporation are taxed at a lower rate of only 13.5% which is a great incentive for sole proprietors that are earning between $60,000-$100,000 on their personal tax returns.

Negatives of incorporating

Although incorporating your business may seem very appealing thanks to the promise of lower tax rates and limited liability there are some downsides that need to be considered, which are::

More government reporting

Don’t think for a minute that you will get lower tax rates without having to pay the price with government paperwork.

Increased accounting costs and responsibilities

If you were concerned about the cost of managing your books and taxes as a sole proprietor chances are high that you will find the increase in cost quite shocking once you incorporate.

More tax returns.

Once you incorporate you will have to file a corporate tax return AS WELL AS a personal tax return

The cost of incorporating

If you have weighed up the positives and the negatives and decided that incorporating your business is the way forward then you will need to budget in the following costs.

Setting up the corporation

This will cost roughly $1000 through a lawyer, which is recommended if there are multiple shareholders or assets to transfer. Alternatively you can incorporate on your own through the BC Corporate Registry for $350 using their online facility.

Maintaining the books

Annual Accounting costs ranging from $2,000 for a simple corporation that experiences minimal activity to $5,000 for an average small incorporated business.

Although this may seem high you really shouldn’t underestimate the value of a good accounting team. This is one area of your business you need to make sure is solid.

We hope that this overview has given you a stronger understanding of why businesses incorporate. In the end we recommend seeking professional advice before taking the plunge and incorporating your business. It is in your best interest to make sure that you incorporate at the best time and set everything up correctly so that you avoid paying penalties or experiencing issues in the future.

Stay tuned

In our next post we will be discussing what happens after you incorporate your business and the steps you need to follow.

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.

Incorporation Series: If you like it, put an Inc. on it

Vancouver Small Business, Vancouver Bookkeepers, Vancouver Small Business Bookkeeper(s)

Recently, a lot of people contacted us about whether or not they should incorporate their small business. So, we are turning to our trusty Homeroom blog to provide you with handy tips and advice with weekly posts on just that: the ABCs of incorporating your business.

While there are many advantages to adding “Inc.” to your business name, there are also a myriad of risks when you take the Inc. plunge at the wrong time, including costly mistakes that can hurt you financially if you don’t fulfill  all of your responsibilities with the Canada Revenue Agency (CRA).

In order to help you gain a better understanding of this topic we will discuss the following topics over the next few weeks:

Should I incorporate?

This post will discuss the costs involved, the criteria you should consider before taking the plunge and the common mistakes people make when deciding to incorporate.

I’m incorporated. Now what?

We will help you understand the process, what decisions you need to make and what reporting needs to take place.

How do I pay myself if I’m incorporated?

This topic is pretty self explanatory. Paying yourself is really important and once you incorporate you want to make sure you do it correctly.

We hope that our series on becoming incorporated will allow you to gain a better understanding of what being incorporated means for you as an individual business owner and for your business.

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 in July by calling us directly on  604-739-9536  today or by requesting an appointment through our contact us page.