How Canadians Can Save Money on their Largest Expense – Tax
Did you know that if you can even save just $1 on your expenses, that goes straight into your pocket and gives you a 100% return without taking any risk.
You don’t have to buy a rental property, take risk on stocks, or buy a new business, just save on your expenses.
Now this doesn’t mean, don’t buy that coffee in the morning, and eventually in years from now it will make you rich.
If you want to do that, go ahead, but there are other massive expenses you can cut first that will get you there much quicker.
So, what is your largest expense.
Your Largest Expense
For many Canadians – and our clients – their single biggest expense is tax.
You have income tax, sales tax, GST, PST, HST, carbon tax, school tax, liquor tax and basically anytime money changes hands in Canada the tax man gets a piece.
The tax man takes 20 to 50 percent out of every dollar we earn.
An average family income of $83,000 per year will pay 42.5% in overall taxes.
If you make over 300 thousand a year you’re spending about 40 % just on the on income tax part, before you pay any of the other taxes.
If you are in the highest tax bracket which many of our clients are, you are actually paying more than 50 % of your money in income tax after you send Ottawa and your provincial government their cut.
To put it another way, 40 % on your 300 thousand income means that you spend all of January, February, March and April working just to pay income tax.
Most people don’t – and shouldn’t – spend that big a chunk of their income each year on their house – let alone on taxes.
Employee vs. Incorporated Business
Now, there are some things you can do to reduce your taxable income.
If you are a T4 employee earning a salary from a job, your options are limited. Employee salary is actually one of the most expensive types of income – or highest taxed income – to earn.
You can save money into your RRSP to reduce your taxable income – but even that is limited to a certain maximum amount each year that the CRA controls.
When you start getting into very high salaries, the limits are often not enough to make big enough savings on your tax bill.
One of the best things you can do to help save tax is to control how and how much you get paid by incorporating and controlling your income.
You can incorporate your own business, but many can also incorporate professionally – like an incorporated lawyer, accountant, engineer, doctor, consultant or whatever. You become a personal corporation.
There are some rules to this and we always recommend you talk to a lawyer if you’re looking for legal advice on incorporating.
How Incorporation can help
When you incorporate, your corporation is taxed at the corporate tax rate which is usually lower than your personal tax rate.
From there you can decide how much you want to pay yourself each year. Ideally you pay yourself however much you need to live life and pay your bills. Then you leave the rest of what you make in your corporation taxed at the lower rate.
In some years when you need more money you pay yourself more from your corp, and in some years when you don’t need so much money you can leave more in the corp. You figure out the exact numbers each year in consultation with your accountant.
Then the questions become how can you grow the money that you’ve saved inside your corporation without being subject to very high taxes? And how can you use the money that you’ve saved inside your corp without being subject to very high taxes?
As a business owner you need liquidity to run your business, so you need access to the money.
You also might be wondering how you can pass this wealth down to your kids without them having the exact same problem of the tax man, when they want to take it out?
That’s where we come in.
We can show you how to use one of the oldest financial instruments in Canada that comes with a very special set of laws and it’s own tax legislation to help achieve these goals.
This strategy can help you grow the money inside your corp, use the money for your company or to invest, and then leave the whole amount tax free to your beneficiaries when you pass.
Contact & More Info
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