Your little home-based business has grown.
You started out as a sole proprietor, managing everything on your own.
But over the last little while, things changed.
You have customers or clients clamouring for your product.
You want to hire employees to help with the everyday operations.
And you need to borrow some cash to re-invest in materials or supplies.
Congratulations. You have a success on your hands.
It’s time to incorporate
There is no minimum amount of gross income that qualifies you and your business for corporate status.
For some people, it makes sense to start as a sole proprietor and even stay there.
Incorporating your business affords you a level of legal protection, tax benefits and credibility.
Lenders, suppliers and buyers tend to look more favourably upon a business owner with corporate status.
You’re off the hook
When you’re a sole proprietor, you are responsible for your business debts. Your personal assets, including your house and car, can be seized to pay off debts. That goes for penalties that may arise from lawsuits against your business.
But as the owner of an incorporated business, you are at risk only for the amount you have invested in the company.
Let’s say you run a writing business and invested $10,000 dollars in office and computer supplies, advertising and other costs.
If you get sued for libel, your at-risk amount is limited to $10,000. A sole proprietor is on the hook for the total cost of the lawsuit penalty.
A corporation also has the same legal rights as an individual. It can own property and it can file lawsuits, too.
Tax benefits for incorporating
When you make the step up to incorporating, your business pays a much lower tax rate than the personal tax rate, which sole proprietors pay.
The difference can be as much as 46 per cent for personal income tax, depending on your income, and 16 per cent for a corporation. The lower tax rate is applied to your first $200,000 of taxable income.
Here to help
There are many more benefits to incorporating your small business. A1 Accounting, a Calgary accounting and bookkeeping firm, is here to assist you with your taxes and planning. We specialize in personal taxes and small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.