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It is good to have your own business. It gives you a sense of independence. It is good to be the boss. But what about your salary? You have put in a good amount of capital investment, and your business has started running. The question on your mind now is how to pay yourself. Accountants Edmonton recommends a few tips to help business owners to pay for themselves.
Draw v/s Distribution
When paying yourself, there are various ways and factors to consider based on the nature of your of business. A sole proprietor generally takes a "draw" from the company revenue. As a sole proprietor, you cannot be considered as an employee of the company, so you do not get a salary. What you take is a part of the profits from the business known as a draw. The term "distribution" is used when the company has more than one owner.
Dividends are what shareholders earn from the business in relation to how much ownership they have in the business. A Return Program Account (RZ) with the CRA (Canada Revenue Agency) must be setup in order to pay the dividend.
Salary is what a sole proprietor can earn like any other employee. To get the salary, you need to set up a payroll account with the CRA. A deduction from the net income of the business takes place when you pay salary. This will be taxed as a part of your personal tax when it becomes your salary. To simplify the payroll process, you could outsource it to a payroll service providing firm.
Limits to How Much You Take
The other major challenge when deciding a salary for yourself is determining how much to pay yourself. You are the owner of the business, so you have the liberty to pay as much as you want. However, a wise entrepreneur calculates before using up the money for his personal needs. To make things easier, stick to paying a fixed salary to yourself from the revenue earned. If you have any expansion plans, then you may consider saving more. Therefore, based on your future plans, you need to consider the limit to how much you take.
Know the Taxability of Your Pay
It is difficult to determine how much tax you owe to the government when you run your own business. Self-employment tax is applicable in such cases. It is equivalent to a Federal Insurance Contribution Act (FICA) tax. The amount payable is based on the profits.
Understand how much is more and how much is less. It is difficult running a business. Managing finances on your own could add to your worries. To manage your finances better, without any worries, get in touch with the seasoned accountants Edmonton.