small business/self employed tax advantages
 

Say both a small business owner and an employee working for a company each who earn 250k yearly, how much more of a tax advantage would a self employed small business owner get compared to someone working for a company?

I assume an employee who makes 250k/yearly would pay around 90,000 a year in taxes to the government. How would a small business self employed person go around this and avoid getting taxed so much?

They see a qualified accountant.

Read up on tax integration.

Write off EVERYTHING!

I was self-employed in 2007 and made just over 97K and only paid $7000 in tax.

Wrote off:
-Car
-Car insurance
-Gas
-Clothing
-Office supplies (computer, printer, etc...)
-Hotels
-Food
-Accountant fees
-Cell phone
- % of housing (mortgage/rent) for your "home office"
-Internet
-Hydro

Get a really good accountant to do your taxes and keep your receipts for EVERYTHING. It cost me about $600 for the dude to do my taxes for me and it was worth it. There are also provisions for "office parties", etc...

I do not recommend doing it on your own. Just a head up though...start organizing your receipts right away or as you go along. Will save you a big headache during tax time.

0 tax advantage.

the canadian tax system is designed so that no person is better as an individual or business shareholder/owner.

if you like, I can scan some of my very old TAX 2 notes (if i can find them in a timely fashion) - so you see the difference.

The biggest advantage is business owners/shareholders receive a tax deferral.



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You must've taken a tax 2 class somewhere along your life.

lol I know someone who writes off dog food for the "guard dog" of his "home office"

I've never heard of anyone being licked to death..

Business taxes are alot lower on your net income while for your personal taxes you get taxed a whole lot more. If you need advise feel free to PM me as we've been in the accounting business for over 25 years.

Now that's a pro tip;)

on the textbook, no difference (tax integration...blah blah blah)

real world, quite a huge difference....mainly because you can write off expenses and recover HST paid (12% saving, if you are a small business / HST registrant)

most people write off a lot of expense that are really not "business" expense.....for example, $1000 camera, computers, tablets, nice cars...etc stuffs that you like to have personally but your business does not need...
Also....all your expenses are HST free. (at least until those retards revert back to GST/PST lol)

if you have a business that only serve one company, you are deemed to be a personal service business, and most of the business deductions are disallowed by CRA rules.

Intrigued. If I go to a conference, I guess I can expense all that. Can you recommend an accountant? I too am self employed.

that's close to 6 figure and only 7k tax? that's very good!!

so do you guys do a salary or a dividend ?
or do you guys just keep it as retained earnings

Generally speaking u do save a bit by declaring dividends over paying salary. Many of our clients switch from paying themselves salaries to dividends.

If it's business related, you can :)
As long as you can justify without bs'ing - cra will accept.

guard dog for home office needs to eat therefore pet food is an expense -- not sure how much cra will care (given the amount is material) ..

I also heard of 'company mascot' needs to eat and stay healthy (for dog license and vaccines). I made sure these were paid for by the owner and not the corp - as a professional, I could not let them slide ...

Yes, conference fee, hotel and flight. Probably not the bar tab though huh :D

tiger_handheld is right. You can't write off everything even though it's easy to do until CRA decides it's time for an audit.

I have my own business too and the CA that I use is a no nonsense type of guy though we've been friends for over 25 years. He goes through my books with a fine toothed comb and always seems to find things that are questionable or entered incorrectly. His reasoning is that if he allows things to slide and I get audited, CRA will want to have a close look at his other customers and see what they're trying to get away with. Not good for business.

But back to the original question. I take a salary but it's at the higher end of a low tax bracket. Mostly I just leave it in the company which is taxed at a much lower rate than personal tax. When, or if it ever came time for me to retire, I would start taking the money out then since I won't be working and hopefully at a lower personal tax rate. I call it my retirement fund since I don't belong to a union or company pension plan. If any of the accountants on here think I'm doing it wrong, please let me know. I really don't want to screw things up.

I did the math for the scenarios of incorporating and paying myself a dividend against declaring it as income.

I did not find a tax advantage.

This right here is the correct way in doing things. You're saving in taxes and if need be you can pull out some Shareholder loan when and if emergency funds are required.

One thing you should always know. If you fuck up then people can come at you personally. Meaning your personal bank statements, house, cars, etc. If your incorporated they can only come after the business assets and not your personal assets. Also the tax rate on companies are way lower than personal tax rates.

I hope you have your books in order because when and if CRA audits you they will look deeply to verify everything you have stated in your personal tax return. They even can deny it if your reasons are not good enough for their standards.

Yeah, I knew that and am taking the risk. I don't see my business as easily "fuck up"-able. But good point though, one a self-employed fellow should know.

The fact about the lower tax rate, that only holds true if the money stays within the company correct? The tax when taking it back out pretty much balances it out. Or did I mess up the numbers somewhere?

Accounting is definitely not my strong point :)

That's what scares me. If I leave all of my savings in the company account and it gets sued, it's all gone. What are the thoughts of starting up another company and transferring the money into it? I think the construction guys always do that. They erect a building under a numbered company and when the job is done, the funds are taken out and the company is dissolved. That also means that there is no one to sue. Besides that, isn't there something called "piercing the corporate veil" which means the person being sued can't hide behind the company? Very confusing stuff.

Not necessarily. For example

Revenue= $100,000

Expenses = $50,000
Your Salary=$30,000 (if done correctly you will either pay very little or get a refund in your personal tax. Also the company will remit monthly payroll deductions on your behalf.)
Net Profit=$20,000 (Company will be taxed at roughly 13%=2,600 in Corporate Tax)

Lets say the following year the company doesn't make a net income but a net loss. You can recoup some of the Corporate tax you paid the previous year.

You technically could but again there is always a paper trail. The money you transfer to another company will become a Loans Receivable. Unless you register that company under some other than yourself. But again if CRA is involved and you owe them money than that can be considered tax evasion. Like I always say to my clients tax fraud is worse than murder in this country.

Then what happens when I need that 20k? Doesn't the tax from that equal out? That's what I found, I only saved a few hundred at best.