Are you thinking about stepping up your game? Are things getting serious in your business? Then it may be time to incorporate, meaning stop being a sole proprietor and let your brainchild into the world as an incorporated entity! This article will mention some encouraging, or discouraging things in taking the next step and creating a corporation.
When your business is turned into a corporation, it will become its own entity. One of the ways life will be different owning your own corporation is that you will be dealing with taxes differently. A business under a specific profit limit is taxed at a much lower rate than a person, so once your incorporated business generates higher income than you would personally need, then you can save taxes. However, when you are paying yourself, either salary or dividend, you will still fall into a specific tax bracket on the personal side. The overall savings can be deferring paying taxes at a later time on money that is kept in the business. So, when you are thinking of incorporating it is important to consider all that to be advantageous. Incorporated entities have limited liabilities and other non-financial benefits also.
Guess what! Bookkeeping becomes less complicated, that is, if you do it correctly. Before, you may have had to figure out which expense was personal and which bank deposit was actually a loan pay-back from a friend, and you may had done manual bookkeeping, mixing everything into one bank account. However, if done correctly, your business will have its own bank statements utterly separate from your personal, which makes bookkeeping, and reconciliation much easier. No more: “did I buy that drill for myself or my business?” kinda questions, if the bookkeeping is up to date and taken care of in a timely matter.
Okay, this is a big one, and most of the drawbacks will fall into this category. Costs. Yes, you know where we are going with this. The cost of running and keeping alive an incorporated business is higher than a sole proprietorship’s. “Why?”, you ask? Simple: there is more work to do. “But work results in an ROI, right?” That’s the spirit! Jokes aside, your tax return just got a super booster and your accountant is supposed to do a full-on compilation for you, which means that your bookkeeping will be reviewed, and adjusting entries will be made when necessary before the financial statements and corporate tax return are filed with CRA. All you have to do is realize that your sole proprietorship never really got the luxury care it deserved.
So to wrap it up, the answer to the question “When is a good time to incorporate?” It depends. There are more things to consider when you take the steps, and you need to take look at your specific situation before you do. Give us a call, and we will be happy to set up everything for you, with the help of a trusted lawyer, of course