This post first appeared on the CA4IT Insights blog on March 20, 2017
In short, there’s no single milestone in a business’s maturity that dictates incorporation. It depends on a lot of variables, so it may require self-evaluations at multiple phases to determine when exactly the timing’s right for incorporating your small business.
When you’re conducting those evaluations, it’s important to create an accurate profile of your company and to give consideration to what it’ll look like as a corporation. There are distinct advantages and disadvantages to the title.
In the former column, you’ll have much greater flexibility with your taxes, including how you pay yourself—salary, dividends, bonus—or even if you pay yourself. A 15-percent preferred tax assessment on the first 500,000 of profit may prove to be all the incentive you need to leave your earnings in the company.
In the latter, incorporation isn’t inexpensive. And when you’re starting a business, expenses can already feel too numerous to track, let alone cover. Perhaps the only thing more precious than funding in those early days is time. Incorporation’s going to take a big bite out of that, too, because there’s more paperwork that’ll need to be filed—separate tax returns, notifications of share sales and directors’ actions.
If there is a brief answer to the question at the top, it’s this: Incorporating a business in Canada should not be entered into lightly. The more you understand, the more comfortable you’re likely to feel with your decision.
As one of the most respected accounting networks across Canada over the last quarter-century (and one of the few that’s ISO-registered), CA4IT specializes in business accounting services, including incorporation advising, for independent contractors, consultants and entrepreneurs. Click here for a free (no-obligation) consultation.
This article was originally published on the CA4IT Blog on July 15, 2016
If you’re like many independent IT contractors, you’ve probably been operating your small business as a sole proprietor. While starting a business, you’ve been more focused on building your client base than your tax strategy. However, depending on your situation, it may be time to consider incorporating your business so that you can take advantage of potential tax benefits.
Incorporating a business in Canada has both advantages and disadvantages specifically for independent contractors. Here’s a snapshot of how incorporation could benefit you:
- Potential for lower tax rate. This is one of the biggest benefits of incorporation, but you need to talk to your accountant to see if it would work for you at this point. You need to be making enough to support your living expenses and more in order to really get these benefits. The general rule of thumb is that, if you are spending all of your profits to live on, incorporation isn’t right for you yet.
- Limited liability. When you incorporate your business, you protect your personal assets. Your home or vehicle cannot be seized for your business’s debt.
- You could be eligible for the small business tax deduction, which would reduce your tax burden.
- Reputation boost.New clients may perceive an incorporated business as more established and therefore professionally trustworthy. It will help provide more legitimacy, and give new clients confidence in your abilities.
- Some provinces allow you to split income with your spouse or children, also lowering your tax burden.
While your accountant can better discern if you would benefit from incorporation, you should know that it does have some drawbacks. First, it has substantial start-up costs that you may not be ready to incur. Also, incorporation will significantly increase the amount of tax preparation and paperwork you will need to perform.
Our CA4IT member firms have all of the knowledge, skills, and experience to help you decide if and when incorporating a small business is right you. Contact us for a consultation and we will help you learn more about the best tax planning strategies for your future goals.
Are You Setting Your Business Up for Failure?
This post first appeared on the CA4IT Blog on June 3, 2016
For those considering starting a business as an independent contractor, they face many decisions in the initial launch of their endeavors. However, some also jump in feet first with no real long-term plan for the growth and success of their business. They assume that they can utilize their professional skills and experience to build a brand one client at a time. While a successful independent contracting business truly begins with personal talent and motivation, you should also create a comprehensive business plan that has clear benchmarking built into it.
What is Benchmarking and Why is It Important for Independent Contractors?
While benchmarking sounds like a term business majors learn in college, it’s truly a principle that applies to any successful business model. Benchmarking is a measurement of the quality of a business’s policies, products, programs, and strategies, as well as a comparison of those to peers or competitors. When you incorporate the principles of benchmarking into your business, your goal is to determine what improvements you need. You also want to analyze how similar contractors achieve their high performance levels, and then use this information to adopt your own plan for success.
Benchmarking seems like commonsense, but new independent contractors often get so caught up in the everyday workload that they fail to take that objective step back. For example, have you reached the point that incorporating a small business makes sense for you, or are you too focused on building your brand or client acquisition? Unlike larger corporations, independent contractors wear all the hats. Therefore you not only must perform all of the day-to-day tasks for your clients, but you are also responsible for marketing, bookkeeping, and future planning. You have to look at the bigger, more long-term picture even if that’s the last thing on your mind right now.
Our CA4IT member firms believe that benchmarking, especially in terms of financial practices and tax planning, helps promote successful small businesses. Whether you need a partner in virtual bookkeeping, or want to know more about incorporating a business in Canada, we have the assistance you need to construct the most effective business model. Contact a representative today, and treat your business like the well-planned organization it needs to be.