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Small Business Resources
My wife & I own & operate a retail store, which has a unique character in that we purchase most of our merchandise oursleves in Africa, from individual adult artisans, on a fair trade basis. We came to BC, Canada directly from S.Africa 15 years ago. Business is very good (& growing) and we are now faced with a 'tax problem'. Our business is a 'sole proprietorship' and based on our last taxable income, we are faced with a $12000.00 income tax bill from CRA! Our Accountant proposed to "Incorporate" the business in order to save on the tax bill. Should this incorporation be done on a Provincial or on a Federal basis and is this the best way to go for us? We love our jobs and found a defenite niche in the retail market, but we do not want to 'work for Revenue Canada' all our lives (ages 57 & 59 already!) Glad to provide more info, if needed and thanks for your time! – TiboutHi Tibout, And congratulations on your success. I actually have a strong interest in businesses that have a socially responsible bent. Now, I am not an accountant and would not feel comfortable second guessing your CA. Tax rates for incorporated entities are, indeed, lower than those for individuals over a certain revenue figure. However, if you take it all out of the company as a salary, bonus, dividend or combination thereof, the end result will be the same. You will have brought into personal income a certain dollar amount that will be subject to taxation. So, you need to talk to your accountant about whether you are taking the money out in its entirety or whether you are leaving money in the business for purposes of reinvestment. The question then becomes whether the cost of the incorporation plus the higher accounting fees associated with tax filings for a corporation are offset by the tax savings. As an extra note - and I am sure your accountant will discuss this with you - it is worth setting your tax dollars aside throughout the year rather than waiting until year end. Alternatively, you can set up a tax account into which you place enough funds as you go to have enough at year end. When funds that are due to CRA are mingled with your business cash, the tax bill can come as a huge and unpleasant surprise. But when you have already set it aside, you never miss it. And, because you will take advantage of all the available tax deductions (RIGHT?), your tax obligation will likely be less than what you have set aside, leaving a nice surprise bonus for you. Good luck and keep doing good for others! Warren
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