Strategy and planning are always a key focus area for any small business. From an accounting perspective, there are a number of simple, but effective ways in which small business owners can optimize their tax planning approach.
1. Income Splitting
In Canada, taxpayers are subject to a system of income tax brackets. For each dollar earned, a different tax rate may apply depending on which tax bracket the additional income falls into. In other words, higher income earners will have to pay higher rates of tax on a portion of their income.
By Employing:
To help combat the tax implications of earning more, business owners that can employ a spouse or their children should consider splitting their income with members of the family. This will help utilize any lower tax bracket room that might be available through other family members and reduce the overall personal tax bill for the year.
It should be noted that family members on payroll should not be overcompensated. Good policy is to pay family members fair compensation for work performed.
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