Merendi Networks is now Merendi Networks Inc.

March 7, 2008 Posted by Tyler Cruz
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In my I made over $100,000 in 2007 post from last week, I mentioned how I was finally taking the steps to incorporating, and had made an appointment with a corporate lawyer.

I met with the corporate lawyer on Monday, and he went over the basic pro’s and con’s of incorporating just like my accountant did, but he went into a bit more detail with how I would be paid.

While he did a good job of explaining the basics of corporate accounting and money management, I still felt that there was a lot of information that went straight over my head. There are just so many simple things such as basic corporate and accounting jargon that I simply don’t know.

Therefore, I’m thinking of ordering a half-dozen books on corporations. There are certainly a lot out there, as an Amazon search proved. However, I’m very particular when I buy books, especially non-fiction. I like them to be up-to-date, not overly complicated or obfuscated, yet not overly simplified either.

But what’s most important, in this case especially, is that the books are directly relevant to me. I am Canadian; I live in Canada. Most of these books (if not all) are American, and are written for the American citizen and corporation. Thus, a lot of the information does not pertain to me. Sure, there is probably still a lot I could learn from them, but I hate learning things where I’m not sure if they are applicable to me or not.

What I need is a book for the absolute beginner engaging in incorporating. A book that gives a bit of history of the corporation, explains basic definitions such as dividend and retained earnings, and explains how a corporation functions and how it differs from a sole proprietorship.

I’m

learning bits of these things as I progress into this uncharted (for me) territory, but it’d sure be nice to know a lot more, as it’s very uncomfortable not knowing exactly what’s going on.

Anyhow, getting back to my meeting with my lawyer… after finishing our discussions, I left the law offices with my only task being to contact the Canadian Revenue Agency to ask them if I need to register for GST or not.

I won’t get into the details here as they’re not particularly interesting, but my corporation will be registering for a GST number. What this means is that I’ll have to charge a 5% GST fee(Government Sales Tax) when I receive income from Canadian residents. 99% of my income comes from the US or other countries though, so this added hassle isn’t too bad; I probably earn less than $400 a year from Canadian residents and businesses.

The corporate tax in Canada is 15.5% up to $400,000.

Compare this to what I would have to pay as a sole proprietor for 2008:

  • $9,200 to $35,016 – 20.24% (Edit: I forgot that the first $9,200 is tax-free. Thanks John)
  • $35,016 to $37,885 – 22.98%
  • $37,885 to $70,033 – 29.98%
  • $70,033 to $75,769 – 32.50%
  • $75,769 to $80,406 – 36.50%
  • $80,406 to $97,636 – 38.29%
  • $97,636 to $123,184 – 40.70%
  • $123,184 and greater – 43.70%

In fact, I’ll have to pay these rates for my 2007 taxes. I don’t know exactly how much I’ll have to pay since I didn’t calculate all my expenses. My accountant should be breaking the news to me shortly after I give her my a copy of my second RRSP contributions letter, but I’ll most likely reach the 38% tier. Compare this to the 15.5% that my corporation will be paying for 2008, and you can see why I badly needed to incorporate.

Anyhow, when I woke up this morning, I listened to a voice mail from my corporate lawyer. They successfully reserved my corporation name of “Merendi Networks Inc.”, so it’s confirmed that I’ll get to use that name :) It’s all mine now! I’m an Inc.!

However, my corporation hasn’t been set up completely yet. My lawyer is going to talk to my accountant about a few more things first, and then they will finish creating the paperwork. This will probably be done tomorrow, at which point I just need to go in and sign the papers. After that, it should just be a matter of a couple hours before my corporation is born.

Now I get to do all the fun stuff such as getting a professional logo for Merendi Networks Inc. and stationary made up :-)

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Posted: March 7th, 2008 under My Websites  

36 Responses to “Merendi Networks is now Merendi Networks Inc.”

  1. Matthew says:

    15.5% on the company profits and then the same tax rate as you’re on now for your salary/earnings from the company, remember that a company is a separate entity like yourself and is taxed as such.

    There are lots of options though such as dividends and it gets very complicated.

  2. Jamie says:

    Nice work!

    Moving up in the world….

    Once thing though to keep in mind is that the money the corporation earns belongs to the corporation.
    If you want to take some money out of the corporation, eg pay yourself you will need to pay tax on that.

    Best to ask you accountant to give you the details and rates applicable to your country.

    • Based on that – what does this mean for personal income?? I mean it seems the only advantage is that the expenses come out of the corporation and not you. You pay 15.5% corporate tax, and then if you want to pay yourself 80,000 per year you would need to pay 38% personal income tax as well. The only advantage I see is if you make a half million+ and continue to pay yourself say $100K per year and keep the rest in the corp to build a business. Otherwise under say $200K is it even worth it?

  3. shafi says:

    Jammie is right
    You can’t avoid taxes.

  4. Must be cool to think that you now own a corporation, congrats!

  5. AdtollForums says:

    Congrats bro wish u the best in the near future ~AdtollForums~

  6. Congrats Tyler, I have an appointment with my lawyer next week to setup my corporation here in Ontario.

  7. If you are at risk of losing your home or you have to run a bunch of accounts and where you build up a bunch of credit I would not go incorp. There is a lot of B/S to go through. Just go sole as it will keep things easier for you, and instead of paying the huge taxes hire your self a brooker or investor and work with them first. Get your money to make you money and there are ways to reduce your taxable income and make a crap load extra with what your making. Going to laywers and such is just going to suck up all your money.

  8. Chris says:

    Congrats on the Inc, but i have to say looking over your network of sites im baffled as to how you generate so much revenue through private ad sales.

    Your advertisers must be getting royally screwed?

  9. John D says:

    Where does the name Merendi come from?

  10. Reid says:

    ^^ I was wondering that as well.

  11. serge says:

    just do it…incorporate~!

  12. Joe says:

    15.5% corporate rate in canada seems quite low. I don’t think there is anything like that in the US?

  13. Aaron says:

    Congrats Tyler! It must feel good to own a corporation.

  14. Congratulations Tyler. It’s a very important step for your growth!

    Best wishes

    Domin

  15. bse says:

    yeah, the corp tax rate is 15.5% but you’ll still have to pay personal income tax on whatever you pay yourself.

  16. Our corporate tax is at a massive 0% (as long as you distribute 50% of the profits). Personal tax is at 10% at the lower level and 18% at the higher. I hate a lot of the things about where I live but when it comes to taxes we’re blessed!

    By the way if anybody is based in the UK, because of a recipricol tax agreement you can also take advantage of the 0% corporate tax.

  17. John D says:

    Money Making Schemes, what country are you talking about?

    How can the 0% corp tax be available to UK citizens?

  18. Mattaw says:

    Tyler, just fyi your link that says “Thanks John” is linked to JohnChow.cow…. I think you mean JohnChow.com OR Johncow.com, not sure which.

  19. Tyler Cruz says:

    To the commentors saying that I need to pay personal tax on top of corporate tax – that is certainly correct. However, if all of my personal income is from dividends only, I can receive $33,000 in dividends completely tax-free.

    John Chow explains this in further detail at http://www.johnchow.com/blog-income-taxes-taking-the-money-out/

    Even if I took extra dividends out over the $33,000 treshold, the tax rate for them on top of the 15.5% corporate tax is still far below what I would be paying as a sole propriator.

  20. I’ve been operating as an LLC since 2001. Congrats on your incorporation!

  21. David Chew says:

    Starting a corporation to your success, congratulation.

  22. Tom Beaton says:

    Congratulations on your incorporation. I shall have to check out the UK laws. No doubt it will be a minefield of jargon and ridiculously long guides which are impossible to understand.

  23. Jim says:

    Good move being incorporated, its cheap and easy.. I think that everyone making a steady income over $200 a month should be incorporated for legal reasons.

    Oh, and 15.5% is no big thing compared to the wonderful American 35% :(
    Death to taxes! ;)

  24. bse says:

    might want to look into setting up an LLC instead of an Inc. and designating it a pass-through corporation….this helps with the double taxation problem.

  25. Hugo says:

    Merendi Networks Inc. wow, kind of cool name :)

    i actually don’t know how much would i be taxed here in portugal, if i earned that amount in a year, but how things are here, im sure it would close to half…. :s

  26. This is a great move to turn into an INC. Saves a lot of tax, and @ Hugo, it’s everywhere in the world that you can save tax by establishing INC. Something I can also start thinking of.

  27. Binh Nguyen says:

    Hello Tyler. Congratulation for being an Inc. now and great incomes. It’s my first time here so just saying “hi!”.

  28. Flimjo says:

    If you want some good tips, Tyler, check out John Chow Dot Com. He goes into a variety of things about how his blog is incorporated, how he pays himself, etc. It’s very useful, and it will give you a crash course in corporations.

  29. Hey, that’s pretty nice income you have there ;) Just wanted to congratulate you on a successful year!! Hope 2008 brings even more.

    - Chris

  30. Will says:

    I would really love to know all the benefits of incorporating as well. I did taxes for the first time and the accountant said I owed $500+ being self employed… arg

  31. Flimjo says:

    Incorporating is better. Nevertheless, owing money rather than getting a refund is better because you avoided giving the government an interest-free loan.

  32. Yup, a corporation is the way to go, especially when you hit the 6 digits mark.

    Not only does it have a lower tax rate, but there is so much more you can deduct, and receive tax credits for.

  33. [...] and practicality, and became Bullish Bankers LLC. My friend Tyler Cruz (whom many of you know) chose to get an S-Corp for Merendi Networks because of savings on employment taxes among other [...]

  34. [...] and practicality, and became Bullish Bankers LLC. My friend Tyler Cruz (whom many of you know) chose to get an S-Corp for Merendi Networks because of savings on employment taxes among other [...]

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