When To Consider Corporate Restructuring

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Corporate restructuring is a great opportunity to examine your business models and create a plan that will facilitate growth and optimize your business for the long term.

Corporate restructuring is a process that significantly modifies the financial and operational aspects of a company.

While this action is typically taken when a company is facing financial hardships, a company doesn’t have to be in distress to benefit from a restructuring plan.

A corporate restructure even when your business is successful can have major benefits!

Overall, corporate restructuring is done to modify a company’s operation, structure, or debt to limit financial harm or facilitate growth.

What Does Corporate Restructuring Involve?

During a corporate restructuring, the operations, departments, processes, or even ownership may change. However, this can enable a business to become more integrated and profitable.

The results of a corporate restructuring vary according to how the business operates and the reasons for making a change.

It could result in changes to procedures, networks, locations, and computer systems. It’s possible that jobs may be eliminated or employees laid off.

Corporate restructuring is a long and detailed process as both the internal and external structures of a business are altered and adjusted.

Once completed, however, business operations will become smoother and more economically sound putting the company in a better position to attain its goals.

4 Reasons Why You Should Consider Corporate Restructuring For Your Business:

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Corporate structuring should not be undertaken lighting. To give you an idea of when it is necessary, here are some situations in which you should consider corporate restructuring:

1. Your Business is Expanding or Refocusing

The business world is dynamic and there’s no predicting when external factors can negatively impact a business or inspire it to change.

Changing the way a business operates through a corporate restructuring can help the business adapt to change.

For instance, the COVID-19 pandemic enforced the need for better telecommunication, improved working systems, revised employee policies, and the accommodation of remote working.

Many companies sought corporate restructuring to ensure that their business continued to thrive during this time.

Likewise, an expansion of a business requires a certain degree of reorganization. As a business grows, it may require setting up new departments, appointing new management, and developing different leadership styles – all of which can be achieved through corporate restructuring.

2. New Shareholders Are Being Brought In

When new shareholders are brought into your business, a company restructuring is necessary to ensure you retain total control of your business.

Restructuring can help you manage the way that dividends are allocated as well as protect your capital contribution to the company.

During the restructuring, you may want to consider issuing different classes to new investors so that voting rights are tailored in a way so that important decisions remain with you.

3. The Company is Becoming Publicly Traded

Companies can become publicly traded through two channels: IPO and Direct Listings.

During the IPO process, new shares of the company are brought to market by an investment bank. Direct listings involve employees selling their shares directly to the general public with no involvement from an investment bank.

Becoming a publicly-traded company is exciting but you don’t want to get too caught up in that excitement. 

Instead, it’s important to consider how a corporate restructuring in this situation can help you optimize your stock decisions as you make a successful entrance into the public market.

4. Your Business is Under Corporate Financial Distress

Corporate restructuring can also be beneficial when your company is experiencing financial distress.

Seeking expert advice can help save your company when faced with the following challenges:

  • Poor Competitiveness
  • Stagnated Growth
  • Significant Revenue Drop
  • Shortage of Cash-Flow
  • Poor Management
  • Untethered Expenses
  • Dependence on Debt
  • Inefficient Business Structure
  • Diminishing Customer Base
  • Decline in Sales

When you can recognize the signs that your business is heading toward financial hardship, you can act quickly and implement a business restructuring that will allow you to restrategize and regain profitability.

Professional Corporate Restructuring Services

Restructuring an entire company is no easy task. However, our experts at Liu & Associates can help you create a customized path to help your business evolve and succeed.

By going over your current financial structure, our team can help you determine the best course of action, whether you are looking to downsize or expand.

Our corporate restructuring service includes changing legal ownership of a company, switching corporate tax structures, strengthening capital structures, and more!

Let us take care of planning and implementing your corporate restructuring plan. 

Get in touch with our experienced and knowledgeable team for more information or book an appointment to get started today.

The Connection Between Corporate Finances and Individual Finances

They say that you should never mix business with pleasure – but when it comes to finances, the two are connected in a number of ways.

Because of the connection between corporate finances and individual finances, it’s important to understand that, while you can approach both in very similar ways, it’s not always a good idea to allow the two to mix.

Before we talk about how to keep your corporate and individual finances separate, let’s first look at their similarities and differences:

Similarities Between Corporate Finances and Individual Finances

The similarities between corporate finances and individual finances all come down to money management. No matter the amount sitting in your accounts, how you handle it determines your overall financial success! 

Discipline

When it comes to managing finances, both corporate and individual, discipline is important. In order to be successful, you need to focus on spending only when necessary.

If you’re running a company, it can be tempting to spend on unnecessary assets but you need to limit your spending to expenses that are pertinent to running and growing your business.

For personal finances, it’s important to curb spending in order to build up savings.

Investment

Whether you are looking to expand your business or your bank account, you need to make investments in order to grow your funds. In your personal life, this could mean purchasing a home. In business, investing could involve hiring new staff or purchasing new equipment.

Budgeting

Both personal and business finances require budgeting. This involves laying out how much money comes in versus how much goes out and seeing what is left over.

Budgeting takes time and effort – even more so for businesses and companies. In order to effectively budget, you need to involve formal documentation such as income statements and balance statements.

Overall, budgeting requires you to set a spending limit and stick to it so you can achieve your financial goals over time.

Differences Between Corporate Finances and Individual Finances

It’s great that you can approach both corporate finances and individual finances in the same way when it comes to budgeting and investment, but there are some ways that business finances are handled that can be detrimental to an individual.

Temptation

We talked about how corporate finances and individual finances both involve a degree of discipline but one notable difference between the two is that managing personal finances comes with significantly more temptations.

Business finances tend to be more impersonal and purchases are made in the best interest of growth and success.

However, individuals tend to struggle with the temptation to make unwise or extravagant purchases.

Corporate financial decisions are usually made more rationally than personal financial decisions

Collaboration

When a business makes financial decisions, it usually comes as the result of collaborating with staff members, co-owners, financial offers, and accountants. This is to ensure that spending solutions make sense for the company.

Individuals, however, are often not required to confer with family members or any other person to make financial choices.

Leverage

One benefit corporate finances have over individual finances is the use of leverage. Businesses can use leverage as an investment strategy and borrow money to invest in the company’s future.

When done right, leverage is a practice that can help support small businesses by accessing capital in order to expand.

Using leverage when it comes to individual finances is extremely risky and result in devastating losses such as losing your car or your home. 

Keeping Corporate and Individual Finances Separate

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Even though there are similarities between corporate and individual finances, it’s important to keep them separate.

It’s important to remember that a corporation is an independent entity that should be free-standing from your personal finances.

Here are some reasons why you should keep your corporate and individual finances separate:

  • Leverage: As we mentioned above, leverage can be highly beneficial for a company but potentially devastating for an individual.
  • Taxes: You can take advantage of tax deductions and write off business expenses when you keep your business finances separate from your personal finances.
  • Business Credit: Obtaining working capital for your business and business credit is key to securing larger business loans.
  • Professional Image: Keeping your company and personal finances separate makes you look like a serious business owner and not just someone who monetized a hobby.
  • Time and Money: When you keep your corporate finances separate, you can utilize the skills of a professional accountant to streamline your financial process, save you time, and save you money.

How to Keep Your Corporate Finances and Your Individual Finances Apart

When it comes to corporate and individual finances, the “how” is probably just as important as the “why”.

Here are some tips for keeping your finances apart:

  • Hire an Accountant: A Certified Personal Accountant (CPA) can ensure your company’s bookkeeping is done properly and that your finances remain separated.
  • Open Separate Accounts: Creating individual accounts for yourself and your business will help you distinguish between your finances.
  • Business Credit Card: A business credit will allow you to make company-related purchases without using your personal card. It will also help you build credit for your business.
  • Separate Your Receipts: Ensure that your business receipts and your personal receipts are organized and stored separately so you can easily access them without confusing the two.
  • Structure Your Business: Establish a legal structure for your business in order to disentangle your personal finances from your business finances.
  • Pay Yourself: Instead of randomly pulling money from your business to take care of your personal finances, pay yourself a salary to help your company stay on budget.

Let’s Grow Your Business!

Our expert team of accountants at Liu & Associates is proud to offer you the accounting services you need to grow your business and achieve success!

From taxes to bookkeeping, we have you covered! Check out our Corporate Accounting Services or contact us for more information.

Changing Corporate Accountants: How to Start

What do you do if you want to change your corporate accountant but feel stuck with your current one because they have been with you for so long?

While you may be fiercely loyal to your current accountant, you should focus on putting your company’s needs first!

Switching accountants is not an overly complicated process. In fact, most of the steps are taken by your new accounting firm and regulations ensure that file and information transfers are done efficiently.

In this article, we’re going to outline those steps and show you how easy it is!

But because we don’t recommend changing your corporate accountant on a whim, let’s start with some reasons why it could be time for a change:

Reasons to Change Accountants

It’s important that you don’t simply change your corporate accountant on a whim. Here are some main reasons why business owners may seek accounting help elsewhere:

They Aren’t Available

It can be frustrating if you can’t reach your accountant when necessary. In order to make informed business decisions, you need to be able to communicate with your accountant in a timely manner.

They’re Not Easy to Talk To

Even if you can get in touch with your accountant when needed, they may be difficult to communicate with.

Between accounting jargon you don’t understand to feeling like you are not understood, it may be time to change corporate accountants if you find your current ones are not approachable.

They Don’t Understand Your Business

Unless an accountant is industry-specific, they may lack the necessary knowledge to fully understand what you need.

While many accounts are not industry-specific and can perform amazingly, you may consider switching if your current firm doesn’t “get it” when it comes to your business needs.

They Are Not Proactive

The reason you’ve hired an accounting firm for your business needs is that you don’t have the time or know-how to do it yourself.

But if your accountants aren’t being proactive and offering better services or even reminders, it may be time to choose a firm that will offer you guidance throughout the year.

They Don’t Keep Up With Technology

When it comes to running a business, technology is key to being more productive and efficient. An accounting firm that embraces technology can better serve your business needs.

You’re Paying Too Much For Their Services

Especially if they are not meeting your expectations! When you pay for accounting services, you want to make sure you are receiving value and understanding.

It’s All About Timing

Now that you have a better understanding of why you should change corporate accountants, it’s important not to jump ship right away!

Switching accountants should happen during times where your business is experiencing little to no financial activity. This could be during a slow period or even after your year-end tax return has been filed.

The last thing you want is to have files transferred between the old and new accountants during times of high financial activity. Waiting until the right time will help to reduce the stress of switching between accountants.

You’ll also want to tie up any loose ends such as ensuring that any pending payments and transactions are complete. This way, you can avoid disputes over unpaid fees that can get in the way of a smooth transition to the new accountant.

Steps to Changing Corporate Accountants

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1. Notify Your Current Accountant

It’s important that you notify your current accountant as soon as possible that you are switching to a new firm. They may be willing to correct the issues you have with their services and prevent the hassle of switching to a new accountant.

However, if you cannot be swayed, it’s important to notify your current firm and end the relationship on good terms. This will help facilitate an efficient transition.

Your new accountant can help you notify your current accountant by drafting a letter of notice.

2. Have Your Files Sent to the New Accountant

By law, your current accountant must turn over your company’s files to the new firm of your choosing. 

This begins with a letter of disengagement that requires your previous accountant to provide all relevant information to the new accountant.

Your new accountant will also send your previous accountant a professional clearance letter so that they can accept all necessary files and information during the transition.

3. Confirm That the Files Have Been Transferred

It’s important that you confirm with your new accounting firm that all files have been transferred by your previous accountant.

If not, you can file a complaint with your former firm’s regulatory board if an amicable file transfer is denied.

4. Approve Your New Accountant

The last step in this process is to assign authority to your new accountant. This allows them to perform tax duties on your behalf, such as filing returns.

This step also includes changing the passwords to your relevant accounts so that your former accountant no longer has access.

Questions to Ask a New Accountant

Of course, before you switch to a new accounting firm, you’ll want to make sure you are choosing an accountant that will meet your company’s needs.

Here are some questions you can ask to ensure that they are the right fit:

  • Who do you normally work with?
  • What services do you offer?
  • What do you specialize in?
  • How do you charge for your services? 
  • What is your response time?
  • What is your turnaround time?
  • What technology do you use?
  • How do you communicate with your clients? (Phone, email, Skype, etc.)
  • How often do you communicate with your clients?
  • Are you a Chartered Accountant or part of an association?

Plus, asking these questions beforehand holds them accountable for their answers!

Ready for a Change?

If you’re thinking about leaving your current accounting firm, this information will give you a better understanding of how it works so that you can make your decision with confidence!

At Liu & Associates, our goal is to provide companies with expert accounting services that offer the support you need as well as help you maximize your business’s finances.

If you’re ready for a change, get in touch with us today!

The Benefits of Hiring a Small Business Accountant (Instead of Doing It Yourself)

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Have you reached a point with your small business where handling your finances is becoming difficult and stressful?

When you’re passionate about what you are doing, starting a business is easy. Running it, however, involves many moving parts.

And if you don’t have the experience or know-how, the challenge can quickly turn to frustration and even negatively affect your small business’s performance.

So what do you do? The short answer is to hire an accountant who can manage all the financial aspects of your small business.

There are many benefits to hiring an accountant and there are a variety of financial responsibilities they can manage on your behalf.

Keep reading to learn more about these benefits and what an accountant can do for your small business:

Should You Hire an Accountant or a Bookkeeper?

Before we get into the benefits of hiring an accountant for your small business, let’s look at the difference between an accountant and a bookkeeper.

Simply put, an accountant can be a bookkeeper but a bookkeeper cannot be an accountant. 

Bookkeepers are able to generate data about the activities of your business through handling day-to-day financial tasks such as recording financial transactions and purchases, managing receipts and tracking sales and payments.

They can provide you with financial insights based on the data collected through bookkeeping.

Accountants, on the other hand, use high-level processes to take that data collected through bookkeeping and produce financial models and projections. They also prepare financial statements, analyze the cost of operations and prepare complex tax returns.

They can also take an advisory role by guiding you through important financial decisions.

You may feel that your small business doesn’t require that level of support in the early stages but, don’t forget, when you hire an accountant you are getting a bookkeeper as well! 

Hiring an accountant to focus on bookkeeping tasks is a great way to establish a relationship with someone who has a vested interest in your finances. Once your business starts to grow, you’ll have them by your side helping you through major decisions.

The Benefits of Hiring an Accountant

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Before you attempt to handle your small business’s finances all on your own, consider these six benefits to hiring an accountant:

Create a Business Plan

Whether your small business is already off the ground or you’re looking to get it started, an accountant can be beneficial during the early stages by helping you create an effective business plan.

Business plans are crucial when it comes to opening up access to essential finances in order to get your business started or to help your business grow.

An accountant can help you by ensuring all of the necessary financial details are included in the document.

Organize Your Finances

Once your business is up and running, you need to keep a very close eye on your accounts and make sure everything is in order. This is where having an accountant comes in handy.

Your accountant can help to maintain and organize your business accounts year-round, making it easier for you to understand the financial health of your business throughout the year.

An accountant will help you establish a system for organizing receipts and invoices as well as other important financial documentation your business handles. 

Record Your Revenues

When your small business provides goods and services to customers and clients, you’re only going to make money if they are invoiced. If you have difficulty keeping track of invoices and payments, an accountant can help you out.

An accountant will ensure that invoices are sent to customers on time and keep track of the payments that are made. They can also keep track of outstanding invoices and missing payments.

In order to make sure you are consistently earning revenue through your business, it’s helpful to have an accountant assist with the billing and invoicing.

Help You Save Money

Yes, hiring an accountant is an added expense but by having your finances properly organized, you’ll end up saving money!

The monthly reports drawn up by your accountant will help you get a clearer picture of where your money is going. This way, you can see where you are overspending and where you can cut back spending.

Having an accountant will help you better understand your overall spending patterns and habits, allowing you to better strategize your business’s finances.

Do Your Taxes

Filing business taxes is nothing like filing personal taxes – and you want to make sure they are done properly to avoid an audit.

You also want to make sure you are maximizing your return by claiming everything you are eligible to claim. For these reasons, it’s best to have an accountant handle your business taxes.

Plus, should you face a random audit, all your paperwork and receipts will be well-organized, making the process quick and painless.

Save You Time

Lastly, you should consider the fact that running a small business is a huge endeavor. There are enough hours in the day to manage every aspect of your business.

Instead of trying to figure out how to deal with your business’s finances on your own, and wasting time doing so, you can hire an accountant to take care of it for you.

They are educated, experienced and able to streamline the process of caring for your business’s financial health.

With an accountant on board, you can shift your focus and energy to growing a successful small business!

We’re Not Just Number Crunchers!

Hopefully, you have a better understanding of exactly how an accountant can benefit your small business and help you save not only money but time as well.

If you’re ready to take your business to the next level, our accountants are ready to help! Liu & Associates is a full-service accounting practice that offers financial services for your small business.

Let’s get in touch today!

Will My Small Business Taxes Affect My Personal Taxes?

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A common question among small business owners is “How will my business’ taxes affect my personal tax’s, and vice versa?”. While owning a small business does not exempt you from paying personal tax, the type of business structure you choose will have an effect on your business taxes. Read on to learn about some of the most common business structures, and how they impact both your personal and business taxes.

Sole Proprietorship

Running your business as a sole proprietorship means that you are your business. Your company has no legal identity separate from yourself. In the eyes of the government, a sole proprietorship does not exist as a taxable entity. Instead, the CRA deals with you directly. In a sole proprietorship, all company profit is to be reported as personal income.

Pros

  • You do not pay federal business income tax

Cons

  • Because you’re reporting all income as personal, you’ll be paying twice the usual amount of self-employment taxes
  • There are some liability risks that are associated with sole proprietorships

Incorporated Businesses

When you incorporate your business, you add on a layer of protection against liabilities and debts resulting from the operation of your business; however, it also adds on a layer of taxes. In an incorporated business, you have to pay taxes on any profits that your company makes. While this business structure is usually only considered by larger companies, if your business is a fast growing start-up, setting up your business as a corporation may be a good idea.

Pros

  • Company has a separate identity from yourself as the owner.
  • Liability and debt protection

Cons

  • Have to pay business income tax

Limited Liability Company

A limited liability company (LLC) allows you to receive many of the benefits of being a corporation when it comes to protecting your personal assets, while still allowing you to claim all business profit as personal income. Similar to a sole proprietorship, you and your company are considered to be the same entity. LLC’s are one of the most common business structures for small businesses.

Pros

  • Some financial and legal protections
  • Do not have to pay business income tax

Cons

  • Since you’ll be claiming all income as personal, you will be paying extra self-employment tax

Questions? Call Liu & Associates

If you are a small business owner with questions about business and personal tax, give the team at Liu & Associates a call! Our expert accountants can help make sure that you are setting yourself, and your business, up for success.

How An Accountant Can Help With Strategic Business Planning

Do you know where your business is heading?

Every business needs a strategy in order to reach their goals.

However, without the proper eyes to oversee the myriad of data involved in growth and development, that path can become confusing and impossible to navigate.

That’s why our professional accountants at Liu & Associates want to help you with strategic business planning.

Keep reading to find out what strategic business planning is and how an accountant can help you achieve your company’s goals:

What is Strategic Business Planning?

Strategic business planning focuses on identifying long-term business objectives and ranking them by importance.

This can be a complex process and involves gathering information, analyzing data and conducting assessments of available business resources.

The point of this entire process is to ensure that a company continues to develop financially and socially.

When it comes to strategic business planning, the goal is to identify and improve the framework, goals and direction of a company by considering its marketing capabilities, technological advantages and available resources.

This creates a foundation in order to develop actionable plans and solutions in order for the company to achieve its ultimate goals.

The entire process can be a huge undertaking, which is why having an accountant aid in strategic business planning can be highly beneficial.

How Can an Accountant Help with Strategic Business Planning?

Accountants do so much more than simply organize money and finances.

Highly trained accountants, such as our team at Liu & Associates, are capable of creating an accounting system that checks, supports and lays out a business’s strategic management goals.

They are also able to adapt to change, meaning that they can accommodate new regulations that can affect your business as well as develop new strategies should your business need to head in a new direction.

Being able to factor in all these considerations means that a company can make better and informed decisions on how to save and spend their money.

Accountants can also help businesses create a strategic business plan by:

  • Setting Profitability Goals. Business decisions cannot be left to chance, especially regarding financial performance. Accountants can collect the right type of data and analyze it so that business owners can make better long-term profitability goals.
  • Creating Acquisition Strategies. Accountants can help develop acquisition strategies in order for businesses to cut costs, consolidate and make beneficial business purchases.
  • Supporting Risk Management and Control. Accountants can help companies monitor the status and health of their business activities by quantifying risk management objectives to make them relevant and measurable.

Regardless of what you are planning, our practitioners will make sure it makes sense from a financial point of view.

The best strategy is one that is clearly laid out and easy for your company to follow.

Strategic Business Planning Services

Strategic business planning can cover any number of things, from simple financial goals to future leadership and growth.

While many business owners have a great plan for their company, it can be difficult to create the strategy when you are overwhelmed by the amount of financial information involved in making that plan happen.

If you are starting a business, or interested in getting your company on the right track, don’t hesitate to contact our expert team of accountants at Liu & Associates.

We will be able to take a look at your company and offer advice on many aspects of your business including tax planning and optimization, accounting policy development, business growth and development and cost analysis.

Get in touch today!

How Incorporating Your Business Can Affect Your Taxes

You own a small business and you’re ready to take it the next level. Incorporating your business carries many benefits including easier access to capital, enhancing your business’s credibility and creating an enduring legal business structure.

It also provides protection from personal liability, meaning that you can safely separate your personal assets from the business.

Does this mean you can protect your personal taxes as well?

Read on to learn how you can avoid having your taxes negatively affected by your business’s activities as well as tax benefits from incorporating and how to file your corporate income tax return:

What Does Incorporating a Business Mean?

When you incorporate a business, it means you are turning a sole proprietorship, or general partnership, into it’s own legal business structure. This business structure is set apart from the individuals who founded it.

Incorporation creates a separate legal entity in order to transact business.

Can Incorporating My Business Affect My Personal Taxes?

Because of the limited personal liability that incorporation offers, your personal assets are protected from tax-related issues.

There is an exception if you fail to deposit taxes withheld from wages. For those, you are held personally liable.

Also, if you treat the corporation as an extension of your personal affairs instead of as a separate legal entity, you could be held personally liable for financial issues. For example, you may be considered using your business as an extension of your personal affairs if you fail to follow routine corporate formalities.

As the owner, and as an individual, you are otherwise expected only to pay personal taxes on your income like any regular employee.

The corporation pays taxes on residual income after salaries, bonuses, overhead and other expenses are paid.

Can I Save Taxes By Incorporating?

In general, corporate tax rates are lower than personal tax rates – so there is opportunity to save taxes by incorporating.

However, in order to benefit from lower tax rates, the company would have to generate a substantial profit.

You can take advantage of lower tax rates if you earn more than you need to live on. Should your profit exceed what you require as a living wage, you can leave the difference in the corporation and pay a reduced income tax rate.

Otherwise, you can take advantage of income splitting in order to save taxes with your corporation. This involves splitting the business income with family members.

Income splitting can create tax advantages more beneficial than reduced tax rates.

Liu & Associates can prepare and file your corporate income tax return for you as well as take advantage of any and all tax benefits. Contact us to find out more information.

How Do I File Taxes for Incorporation?

Corporations are expected to file a T2 corporate tax return every year within six months of the end of its fiscal year. A fiscal year can be the same as the calendar year or it can begin in any months and end twelve months later.

You can file a corporate income tax return electronically with tax preparation software certified by the CRA.

The T2 corporate tax return is more complex than a personal income tax form. It is recommended that you have your corporate tax return prepared by a professional tax accountant.

If your corporation owes taxes after filing a return, the balance can be paid through the CRA online services, from the business’s bank account or by cheque.

Put Your Corporation In Good Hands

Navigating the world of taxes once you incorporate your business can be tricky and complicated.

Avoid making costly mistakes by contacting our expert accountants at Liu & Associates. We can help you properly prepare and file your corporate taxes so that you can experience all of the benefits of incorporating your company.

Does Declaring Corporate Bankruptcy Affect Me or My Credit?

Bankruptcy may seem like a golden ticket when you are looking at clearing debts from your creditors – but there are many things to think about before you file for bankruptcy, especially if you are doing so for your corporation.

One such concern is whether or not declaring corporate bankruptcy will affect your personal credit.

When it comes to owning a corporation, as opposed to a sole-proprietorship or partnership, you are not legally responsible for business debts. However, there are exceptions for which you can be personally liable. Before explaining these exceptions, it’s best to understand the difference between corporate bankruptcy and personal bankruptcy.

Corporate Bankruptcy versus Personal Bankruptcy

Because both individuals and corporations can own assets, they are both able to file for bankruptcy under the Bankruptcy and Insolvency Act.

The process is fairly similar, which a few key differences:

  • When declaring personal bankruptcy, all assets and liabilities are considered personal.
  • When declaring corporate bankruptcy, an incorporated entity is considered a legal “person” according to the Bankruptcy and Insolvency Act. This means that while some debts may be eliminated under bankruptcy, there are those exceptions that you may be held personally liable for.

The process of declaring bankruptcy is similar as well. The individual or corporate business owner must meet with a Licensed Insolvency Trustee (LIT) to file for bankruptcy. Once the bankruptcy is filed, creditors are notified and not permitted to contact you regarding the debt.

From the date of filing, you are eligible to be discharged from the bankruptcy after 9 months. However, the bankruptcy will remain on your or your business’s credit history for at least 6 years.

Before making any decisions about bankruptcy, talk to a trusted advisor at Liu & Associates to consider alternative solutions to your financial problems.

How Corporate Bankruptcy Can Affect Your Personal Credit

As mentioned above, there are special circumstances in which filing for corporate bankruptcy could affect your personal credit. These circumstances include making personal guarantees on loans or credit and the company’s tax liabilities.

Personal Guarantees

It’s possible that when you apply for a loan or credit, the lender or creditor will require the corporate business owner to sign a personal guarantee for the credit. This is an agreement that you, as an individual, will take full responsibility for the payments.

Should you file for corporate bankruptcy, this debt then becomes your financial responsibility. If the debt is unpaid, it affects your personal credit.

Business Taxes

Unpaid business taxes are not typically cleared through corporate bankruptcy. This includes any taxes withheld from employee salaries or sales tax (also known as trust fund taxes). You are personally responsible if you collect these taxes but fail to forward them to the taxing authority. This unpaid debt will directly affect your personal credit.

Bankruptcy As a Last Resort

Before you file for corporate bankruptcy, it is recommended that you seek professional assistance to discuss all of your options.

Even if you have no debts that could be held against your personal credit, there are considerations that should be made before declaring corporate bankruptcy:

  • The business will be finished.
  • Your employees will lose their jobs.

If your corporation has run into financial difficulties, there may be an alternative to your situation. Our expert accountants at Liu & Associates can review your corporate finances to determine if there is a better path for you, your business and your employees.

Contact us today to discuss your options. We are more than happy to help you save your business!

Common Tax Mistakes Small Businesses Make

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Small businesses are taking the world by storm as more and more people opt to work for themselves and create their own legacy. With growing businesses come growing pains and many small business owners are prone to making many mistakes – especially when it comes to taxes.

If you are a small business owner, or are thinking about starting your own business, avoid the hassle of tax-time headaches by avoiding these common mistakes:

1 Not Keeping Receipts

If the CRA sees any amounts on your claim that seem a bit too high or suspicious, they are entitled to perform an audit on your return. This would require that you provide receipts as proof of expenses so the CRA can compare the totals to those on your return.

Some businesses make the mistake of relying on their credit card statement as a record of expenses for their company. Unfortunately, the CRA does not accept credit card statements as evidence of expenses.

To avoid any potential issues with receipts and expenses, keep all receipts related to your business. Maintain an organized system by writing exactly what the receipt was for on the back.

2 Claiming Personal Expenses

When certain aspects of your personal life are used to run your business, it is important that you make a clear distinction of what percentage is business and what percentage is personal. When you fail to divide the usage, filing your taxes will become a confusing mess that will need to be sorted out.

For instance, you may use your personal vehicle for business purposes. By tracking the amount of time you use your vehicle for business, and comparing it the time you use it for personal reasons, you can generate a percentage that you can then apply to vehicle-related expenses.

3 Inaccurate Payroll Records

Many small business owners take it upon themselves to manage payroll to their employees. However, a disorganized payroll system not only creates a nightmare when preparing to file taxes but can also result in some hefty penalties if not done correctly.

Speak to a professional accountant about how you can best organize your payroll system and properly classify your employees to avoid tax related issues.

4 Forgetting to Charge HST

When your small business makes less than a $30 000 annual income, a registered HST number is not necessary. Some businesses, however, find themselves experiencing an increase in income and surpass the $30 000 mark before realizing they have yet to apply for an HST number.

It is recommended that all small businesses, despite their annual income, register for an HST number right away. This will ensure that you are prepared should your annual income surpass $30 000. Otherwise, you may be penalized for not charging taxes if your annual income is greater than that amount.

5 Failing to Report Cash or Trade Payments

Some small business owners believe that if a transaction is not recorded on paper then there is no need to claim the payment as income. This is very illegal and all cash and trade exchanged for product or work must be reported.

If not, the CRA may impose severe penalties that include charging interest, court fines and possibly jail time. It is best for all small business owners to report all income and keep copies of receipts made out to customers and clients.

6 Being Disorganized

Overall, the biggest mistake small business owners make is being disorganized. Tax time is the worst time to play catch up on your record keeping.

An experienced accountant can help you keep all your records organized as well as aid you in preparing your taxes.

Contact Liu and Associates today with any questions you may have about organizing your small business and preparing for your tax return.

What’s Best For Business Owners: Salary or Dividends?

bills-and-coins-in-red-envelope-sitting-on-a-tableIf you have chosen to set up your small business as a Canadian corporation, you have a couple of options when it comes time to pay yourself and any other company shareholders. You can choose to pay yourself a salary, receive dividends, or a opt for a combination of both. There’s no simple answer, so join Liu & Associates as we discuss the pros and cons of each option.

Business Salary

If you’re paying yourself a salary, the payments become an expense of the business. You’ll receive a personal income, and get a T4 at the end of the tax year.

The Pros

    • You’ll be paying into the Canada Pension Plan (CPP). The more you contribute to CPP, the more you’ll eventually receive once you hit retirement.
    • Your salary reduces the corporation’s taxable income, which reduces how much tax your business will owe each year.
    • When applying for a mortgage, banks like to see steady income. You’re likely to get a better rate if you have a salaried income vs a dividend one.
    • With your personal income, you’ll be able to take advantage of other investment opportunities such as a registered retirement savings plan (RRSP) or a tax-free savings account (TFSA).

The Cons

  • Your salary is taxable. It’s possible that giving yourself a salary could increase your personal tax burden.
  • You’ll have to do payroll. To keep things above board, you’ll need to set up a payroll account with the CRA and file all the necessary paperwork that comes along with such an account.
  • If your company’s profits vary from year to year, a salary could cause you tax problems down the road if you aren’t able to carry a business loss one year.

Dividends

Dividends are payments to shareholders of a corporation that are paid from the after-tax earnings of the company. Dividends are declared, and cash is transferred directly from the company’s account to a shareholder’s personal account. The business will need to prepare T5s for anyone who has received dividends.

The Pros

  • Dividends are taxed at a lower rate than a salary would be, which can result in paying less personal tax.
  • By not paying into CPP you’re keeping more money in your pocket today.
  • Transferring dividends is a pretty simple process! There’s no need to register for payroll – just declare a dividend and transfer the cash.
  • You can claim dividends anytime.

The Cons

  • By not contributing to CPP for as long, you will be entitled to less when you decide to retire.
  • Because you don’t have a personal income, you aren’t able to take advantage of RRSPs or TFSAs.
  • Dividends can exclude you from certain personal tax deductions.

Chat With An Expert

When it comes to deciding whether to pay yourself or other shareholders with a salary or dividends, it’s best to chat with a professional. Your choice will be impacted by a host of factors, like your current income level, your age, and the company’s projected income. An accounting professional will take all of this into consideration and help you draw up a plan for continued business growth and success.

For expert advice, call the team at Liu & Associates today.

 

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