It’s been 30 hours since Vicki Smith, co-founder of Lemon Leaf Prints Inc., an online stationery store, has slept, but the lack of shuteye isn’t fazing her.
“I don’t even know what sleep is any more,” says Ms. Smith, who launched her Charlottetown, PEI, business earlier this year to complement her five-year-old graphic design company, NiteOwl Studio Inc. “It’s usually 38 hours before I crash – so I still have a few hours left in me.”
Ms. Smith’s nocturnal work schedule might be typical of entrepreneurs trying to gain an edge, but she also makes use of a less stressful practice in growing her business: She splits her income with a family member.
With all the media noise about the new federal income-splitting tax policy for families in recent months, it’s easy to forget that small business owners and the self-employed have been income splitting for years. The concept is basically the same: The higher income-earner shifts income to the lower earner, who will pay less tax on it.
It’s a sound strategy that can take a big bite out of taxes for people who are in wildly different tax brackets. In the Canadian system, the more you make, the more you pay. In fact, someone making $150,000 pays more tax than two people combined making $75,000 each. If you pay your low-income spouse $20,000 from your $90,000 in earnings, not only will you drop to a lower bracket and corresponding lower tax rate, but the $20,000 will be taxed at a lower rate, too. It’s a double-win.
Ms. Smith takes advantage of income splitting by paying her husband, Dennis Swan, $20 an hour to do the bookkeeping, purchasing, mailing and banking for her companies on weekends and evenings when he’s not at his day job at Holland College. He generally works 15 hours a month on the advice of their accountant, who wants to make sure Mr. Smith avoids being bumped up into the next tax bracket.
“If I’m paying him, it’s keeping the money in the family,” Ms. Smith says.
Make no mistake, though, rules determine who can participate. For starters, it applies only to immediate family members such as spouses or children. (Sorry, Grandma. Even with your fondness for filing, you don’t make the cut.)
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