Tax Tip Thursday
Know Your Income and Tax Liabilities
I met with a client today and they reminded me again why it is so important to understand your income and tax liabilities. The appointment was to discuss their Business and to talk about some areas of owning a corporation that are less understood.
- Compensation
- How to pay yourself out of the corporation
- What is the impact on your CPP and RRSPs
- How much should you pay yourself
- Should your spouse be paid through the corporation
- Automobile expenses
- There are various ways to address them
- Renting space from your corporation!
- Home office expenses
Near the end of the hour, we were talking about ways to split income. One of the spouses had left their job earlier in the year and I was asking about that. This was when they told me that they had sold a cottage during the year and that is when they quit their job. So we suddenly went from talking about how to take a salary out of a corporation to talking about hundreds of thousands of $ in income and potentially taxes as well!
Due to time constraints, we had to book another meeting.
Because we had that conversation today, they will be in a position to save $10s of thousands of dollars. They have 3 months left in this year to make adjustments.
The sale will attract capital gains. While they will be able to split it, they still have income from their corporation as well!
By making some changes over the next 3 months, we can potentially save them taxes on about $40k of income and therefore save them about $16k in taxes potentially.
By introducing registered savings accounts to the equation, we can potentially defer another $20k – $40k in taxes.
By introducing income splitting (legal), we can potentially save them another $10k – $20k in taxes.
By reviewing details about the cottage sale, we can potentially save them another $10k – $20k!
While this is a bit of a unique situation, they had no idea that they could influence the outcome of their tax bill in April, by speaking with me NOW.
While there are fees associated with my time, they could have a combination of tax savings and tax deferrals (for over 20 years!) in the neighbourhood of $75k!!!!!!
Save Big!
Getting ahead of your taxes as early as possible is the best way to make sure you don’t pay a penny more than you have to. If you wait until the end of the year, there might not be much you can do anymore!
Get a head start this year and book an appointment today!
Disclaimer:
This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.