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Dome Duong - 5 Easy Tax Tips for Individuals & Business Owners
Dome Duong Chartered Accountant is a full-service accounting firm that provides a full range of financial services including tax preparation, accounting, and business advising for businesses and individuals.
Every accountant should be aware of these easy tips for tax and savings available to both business owners and individuals. Read about these tips below:
Tip #1 – Salary vs. Dividend payments
Dividends are taxed differently than wages or salaries. Taxes are generally payable on receipt of dividends and are generally lower than the receipt of salaries or wages. As an example, and assuming that you have no other income sources, dividends up to $41,000 would not result in federal income tax. But, $41,000 in salaries or wages would however, result in income taxes of $4,400 approximately. Tax savings are achieved easily when dividends are received.
Tip #2 – Minimize Taxes by Incorporation
Corporate tax rates are often much lower than personal tax rates. The 2012 combined federal and provincial tax rates in British Columbia is 13.5% (on business income up to $500,000) if you are a Canadian Controlled Private Corporation (CCPC). However, Individuals in BC are taxed at gradual rates with a maximum of 43.7%. This produces tax savings of 30% through incorporation. It may seem that incorporation should be a no brainer at first glance, but incorporation is not for everyone. There a many administrative costs for maintaining a corporation, including the legal and accounting fees, and ongoing compliance requirements each year. In our office, as a rule of thumb, taxable income should always be over $60,000 before it economically makes sense to incorporate.
If you are incorporated already, then tax planning is essential to determine whether you should receive a payment of dividends and/or of salary, and whether other income splitting opportunities are available to you. If you are able to retain as much of the profits inside your corporation, then you receive the benefit of significant tax deferral.
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