As average tax payers we often gripe about how some of us have to pay substantial tax yet those that really can afford it seem to be paying very little. We all know that this comes down to what is commonly known as tax loopholes.
Now that you have overcame your tax responsibilities as a couple and you now have a new little one on the way, you also are going to have the extra responsibility of determining how your taxes have to be done in relation to the newborn baby.
It is not unusual for taxpayers to pay closer attention as to what is going on with the government during an election. Once the election takes place then many of us tend to go back to our normal lifestyles and just except whatever the government is proposing to bring in by way of legislation. On the other hand many taxpayers are now becoming more keen on following what is going to take place with their tax dollars.
As another year comes close to its end the last month is an extremely busy one. On a personal level everyone is gearing up for the Christmas season. There is decorating to be done, gift buying and wrapping is on the agenda, and then there is tons of entertaining and events to not only to hold but attend as well.
On the business level there is the year end that most businesses have to tend to, and somewhere within the multitude of thoughts that are running through your mind, there is some preliminary planning for changes to the company to make it more financial feasible.
It is also the time of year where people start thinking of making New Year’s resolutions that will affect them both on a personal and financial level. When it comes to the finances this must include some thought given to the tax situation because this is a necessary expense that almost all adults have to deal with. It is also an area of finance that so many people figure is out of their control so what is the point in planning or making resolutions about it when they can’t do anything about it? However, this is not the case as you can take control of your tax situation.
There are many Tax effective ways to Take Money Out of Your Business. When planning for a family small or medium sized business group, the main consideration is how much ends up in the family unit’s pocket. Here are three strategies to consider.
1. Declare a Dividend to a Lower Income Shareholder (includes kids over 18)
This is a great way to split income or pay for children’s post-secondary education. Consider the Taxes payable for one person making $120,000 verses three people making $40,000. There can be almost no Personal Tax (T1) owing on a $40,000 dividend when taking advantage of various credits.
The initial set up to accomplish this is important. You do not want to confer a benefit if your spouse or children are not already shareholders – if that is the case some planning can help alleviate this risk as there are still ways to get them in. Proper planning is necessary and varies depending on circumstances. Essentially and for the most part different classes of shares for each family member would provide the most flexible of plans
This strategy considers that dividend income is first Taxed at a corporate level – as such, shareholders can claim a Tax credit to offset Personal Taxes. The shareholder receiving the dividend may claim a grossed-up amount of income based on the approximate corporate taxes paid, and the dividend credit returns some of this inflated amount.
And the nice part is you do not have to justify family members working within the firm for this to work as is the case of paying wages. However, in the initial stages you would want to document how they purchased those shares so as not to be subject to various attribution rules.
Everyone knows that they have to pay their Taxes (T1 & T2) at the end of the year. For Canadians, that entails a notice of assessment, a Tax Return (T1 & T2), an audit or even some compounding of the three.
For many of these people, these things happen during “Tax Season.” But a smart business person knows that “Tax Season” really stretches all year long.
Whether you are running a farm by yourself or a large corporation with a squad of mates, Tax (T1 & T2) Planning has to be an constitutional component of your day-to-day operations. If you are not taking steps all year-round to derogate the amount you’ll finally have to pay in Taxes (T1 & T2), then you are costing your business vast amounts of income that it will never get back. That’s clipping directly into your profits.
Fall is not often a time for Small Business owners to think about Taxes; nonetheless, farmers and truck drivers can get a jump on their Taxes and realize savings by Planning at once.
Many experts often preach that Tax Planning in the fall before year-end is a beneficial idea. Decisions and actions taken before the end of the current Tax year can reduce your 2015 Tax liability and guarantee you’re receiving all the credits and grants.
3 Main Goals of Tax Planning
There are 3 main goals to Small Business Tax Planning over the course of the year.
1. Reduce the amount of Taxable income to be as low as possible.
2. Lower the rate at which each dollar they earn is Taxed.
3. Avoid any missteps when filing.
The key to minimizing tax liability is careful planning, but it’s not easy for busy individuals and business owners to do that on their own. It takes considerable financial experience, and that’s exactly what Accountable Business Services (ABS) offers.
Whether you’re a small business owner seeking proactive income tax planning or an individual who wants to get the most back on their tax return, Accountable Business Services is here to help. Our firm is skilled in all aspects of income tax planning and preparation and delivers our services with honesty and integrity. Accountable Business Services offers services in Alberta, Edmonton, Calgary and all over Canada to the honorable Canadians.