Frequently Asked Questions About Salary and Dividends by Owners of Corporations
As an accountant and small business financial consultant, one of the most common areas of confusion and questions by small business corporation owners revolves around how to pay themselves and if one way is preferable to another. I have addressed some of them in my blog posts on the factors to consider when choosing salary or dividends and the types of ways to structure your remuneration . There are however specific questions that common up frequently:
What to Do After You Have Incorporated
Deciding whether to incorporate can be challenging for many small business owners. There is a lot of conflicting information and it can be hard to determine, in the absence of experience, what facts are relevant to your situation. The internet can only answer so many questions. It can be helpful to speak to an expert on starting your business, but ultimately the decision is yours.
Once you have decided to establish a new corporation, there are certain best practices that you should implement to ensure that your corporation runs smoothly right from the beginning. By being proactive, you can turn your mind to your actual business and avoid unpleasant surprises (such as incomprehensible letters from the government)
Investment Strategies for Your Incorporated Small Business
One of the benefits of having an incorporated small business is that after paying yourself a salary or dividend any excess funds can be invested directly through the corporation. Since small businesses often cannot predict how their business will perform from year to year, the ability to retain funds in the corporation allows for a cushion to smooth out fluctuations in earnings which can then be paid out in lower performing years. By keeping the funds in the corporation, the business is able to defer tax since usually the small business tax rate is lower than the personal tax rate. Some points to consider: