Reducing Taxes Through Dividend-Salary Mix Calculations

Should I take wages or dividends from my privately owned corporation? What is the best way of taking money out of my company? In other words, what will result in the least amount of income taxes?

A Canadian accountant will perform a dividend-salary mix calculation to determine the best way of withdrawing money from the corporation.

Even though Canadian income tax laws are different from other jurisdictions, some of the same principles of tax planning will still apply.

In order to qualify for Canada Pension Plan (C.P.P.) benefits or to make Registered Retirement Savings Plan (R.R.S.P.) contributions, there must be some earned income. This requires the payment of wages. In fact, many accountants will make sure that their clients have maximized their C.P.P. and R.R.S.P. contributions for the year in order to ensure sufficient future retirement benefits, even if it costs a little more in income tax and/or payroll taxes.

On the other hand, the Dividend Tax Credit reduces the tax payable on dividends received from the corporation, since the corporation has already been taxed on its income. Therefore, the accountant may recommend that the corporation pay some dividends.

Sometimes, if the owner doesn't require the cash, the income is simply retained inside the corporation and tax is paid at the lower small business rate by the corporation. If the corporation had income in excess of the Small Business Deduction, it likely would pay it out in wages.

Depending on the circumstances of the taxpayer, wages may be the least expensive way of taking money out of the corporation. Sometimes, dividends are better. Generally, a mix of both is required.

An accountant will have to balance many factors to come out with the optimal mix for you. He will consider your family situation, other income sources, losses, investment and retirement objectives, et cetera. Keep in mind that the lowest possible tax bill for the current year is not always in your best interests.

RESOURCE BOX:

J. Stephen Pope, President of Pope Consulting Inc., http://www.popeconsultinginc.com/ has been helping clients to earn maximum business profits for over twenty-five years.

For valuable Work at Home Small Business Ideas, visit: http://www.yenommarketinginc.com/

For more information about income taxes, visit http://www.yenommarketinginc.com/income-ta xes.html

---

Home Based Business Tax Deductions

Running a home based business reaps many wonderful tax deductions... Read More

1031 Exchange Rules and Requirements

Following is a reproduction of the IRS's rules and requirements... Read More

How to Cut Duty Cost and Increase Profit as an Importer

Import duties continue to be significant elements in the cost... Read More

Need a Copy of Your Tax Return Information?

Taxpayers have two easy and convenient options for getting copies... Read More

Another Tax Loophole

Just image, you are a small manufacturing company, business has... Read More

Tax Time Tune Up

Excerpted from the new book, "How to Do Space Age... Read More

Tax Tips to Save Money on Taxes - Get the Corporate Kick and Save Loads of Money

Why a Corporation Helps Save You TaxesThe Tax Rates (Notice... Read More

Corporations Failing To Claim AMT Exemption Overpay Taxes By $11,000

Does your incorporated business pay alternative minimum tax ["AMT]? If... Read More

Anticipating Your IRS Refund Can Cost You Plenty

While accountants are reaching for aspirin, millions of Americans are... Read More

How to Reduce the Estate Tax Using the A-B Revocable Living Trust

In a past article I relayed the plight of the... Read More

The Annual Gift Tax Exclusion: Getting The Edge

Whether helping the kids with a down payment on their... Read More

Correspondence From The IRS ? Yikes!

It's a moment every person dreads. You pick up the... Read More

Keeping Your Own Money ? NOT Handing It Over To The Taxman

Most people trying to make a crust online (or offline... Read More

Small Business Tax Deduction - Write-Off Bad Debts

Practically every small business has receivables that it cannot obtain... Read More

Tax Strategy - Let Washington Pay for Your Corvette, Porsche, or Air Plane

Deducting Your Auto ExpensesAuto deductions are a very complex topic.... Read More

How Home-Based Businesses Can Avoid Giving Uncle Sam More than His Share

How Home-Based Businesses Can Avoid Giving Uncle Sam... Read More

Where to Find Tax Breaks for Your Home Based Business

April 15th looms in front of most people every year... Read More

Tax Reduction Tips

In the rush to get tax returns prepared and filed... Read More

Business Tax Loophole: Leasing Assets To Your Corporation

While there are many equally valid reasons to incorporate, saving... Read More

Small Business Tax Issues for Self-Employed Individuals

The United States is a nation of entrepreneurs. There are... Read More

Knock-Knock-Knock

Knock-Knock-KnockWho's there?The IRS!The next quarterly payment of estimated income tax... Read More

Home Business Tax Tips

If you have recently started an Internet or home business,... Read More

Some Folks Pay A Lot Less Tax Than Others On Very Same Income?Did You Pay Too Much Tax In 2004?

Someone once remarked, "Next to being shot at and missed,... Read More

Furnishing Evidence in E-Tax Compliance

Self-assessment relies on taxpayers voluntarily meeting their tax obligations. This... Read More

The Internet Tax Man Cometh

Q: I was contacted by the city tax collector to... Read More

Fraudulent Tax Shelters ? KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has... Read More

Tax Trap #3 -- IRS Penalties, Interest and Love Letters

As a small business owner or self-employed person, one of... Read More

Your IRS Tax Appeal Rights

Are you in the middle of a disagreement with the... Read More

How To Set Up A Tax-Saving Bookkeeping System

One of the most important, but least understood or appreciated... Read More

Tax Trap #4 -- The Quagmire of Depreciation

If you are a Small Business Owner or Self-Employed Person,... Read More

Tax Records - What You Should Keep And For How Long

Many taxpayers are confused about how long they should keep... Read More

What the Tax Software Companies Dont Want You to Know

Haven't done your taxes yet? No problem. Now there is... Read More

Reducing Taxes Through Dividend-Salary Mix Calculations

Should I take wages or dividends from my privately owned... Read More