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Newsletter Page 4 - Toronto Certified General Accountant
Newsletter September 2008
Advantages and Disadvantages of Incorporation, and the Business Life Cycle
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Small Business Needs - (Cont'd - Page 4)
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Additional Costs of Maintaining a Corporation - (Cont'd)
The accounting fees are typically higher
for corporations because corporations have to file their
own tax returns, there
is more tax planning involved, and T4s and T5s have to be prepared to
remunerate
the owners for draws out of the corporation for personal needs in the form of
salaries,
dividends or both. Information on dividends distributed to the owners
must be recorded in the
minute book, and this information is provided by the
accountant to the owner’s lawyer. In
summary, the accounting and legal costs
are some of the extra costs associated with maintaining a
corporation, and
again, they are tax deductible. The advantages of incorporating a growing
profitable business, however, outweigh the necessary legal and accounting
costs.
Conclusion
In conclusion, whether you are
unincorporated or incorporated, or whether you are about to make
that decision
to incorporate, having the above advantages and disadvantages in mind throughout
the business life cycle is critical to improving your overall tax situation.
Remember to maintain the
company minute book if you have a corporation, and to
determine if your business should be
registered for WSIB.
Stay Tuned…
My next newsletter will discuss ways to
draw money from the corporation on a tax-free or low-
tax basis. I will also begin
to discuss the tax issues associated with the end of your participation in
the
corporation’s life, whether it be by selling it, or by transferring it to
children, or by closing the
doors of the business, winding it down or by
dying! Notice how I’ve used the word participation, as
the corporation has
a life of its own. The corporation can be a vehicle that allows you the
flexibility
to plan for your retirement and personal estate.
Personal Tax Credits – Claim them early at work for extra money in your pocket
If you are an employee, you should get a form
called a TD1 (see attached) at the beginning of the
year which explains the
personal tax credits that you are allowed to claim in order to reduce the
tax
deducted from your pay. For example, every resident in Canada is allowed the
basic personal
amount of $9,600, which means that the first $9,600 of income
you make in Canada is tax-free.
On the attached TD1 form, the basic personal
amount is the first item highlighted. When it comes
time to fill out the rest
of this form in a few months, my objective is for you to understand all the
credits available to you, because the earlier you claim them through your work,
the better your
cash flow will be throughout the year. If you plan for things
in life, they usually come to you easier
and cheaper. If you have not properly
chosen these personal credits allowed to you at the
beginning of the year, the
government will be taking more tax from your pay than it should every
time you
get paid. Yes, you will get this tax refunded to you in April when you file
your personal
income taxes (if you don’t claim them early at work), because
these credits that appear on the
TD1 form are the same credits that appear
on your personal income tax return. But why loan the
government your money,
interest free, during the year, when you can save and invest it yourself?
There are actually two TD1 forms that need to be completed, one federal and
one Ontario (see
attached TD1 and TD1ON forms), but the Ontario form
essentially deals with the same credits as
the federal but with different
allowed amounts.
Click Here to Read More From This Newsletter-->
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Toronto Certified General Accountant
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