As mentioned in our last post regarding incorporating, a main reason to incorporate is that the corporate tax rate is lower than the personal tax rate. We talked about how this is especially useful when taking on large debt. In this post we will talk about the benefits of incorporating when your business is expanding.
How Does This Work?
When your business is expanding, you may be trying to stockpile some money before making large purchases. In this instance, you could be saving this year to buy something next year. You won’t get the tax benefits of purchasing an asset until you actually have that asset. Therefore, you may have already paid tax before receiving this deduction. This is where the lower tax rate can be beneficial.
Essentially, you’ll need to make more money to save a certain amount when being taxed at a personal rate.
For a full example, check out our video below. We work through the amount you’ll need to make as a business in order to save a $50,000 down payment. We compare the amount needed when being taxed at a personal rate and when being taxed at the corporate rate.
If you’re planning to re-invest money in your business by expanding, incorporating makes so much sense. For this reason, it is beneficial to incorporate if your business is expanding.
Be sure to subscribe to our channel for more tax tips and to stay up to date on things in the business world!
It is always a good idea to contact your advisor to discuss your personal or business finances. We stay up to date on the current government programs available for business owners and are always happy to help our clients with the application process. If you’re in need of an accountant, check out our services page or book a “Get to Know You” meeting with us by clicking here!