Further to my earlier post about doing it yourself, I started delving a bit into tax planning. I have a humdinger of a corporate tax bill coming up (the price of success) and was wondering if I could reduce that by declaring a bonus for myself and paying it out as regular employment income. I wanted to see what the overall effect of that would be on my total tax situation.

The Canadian Tax Calculator was a very useful tool for me to model different personal tax scenarios for myself. I tested out the difference between paying dividends and paying a bonus, adding it to the employment income I make from teaching at Camosun College. In addition, I calculated roughly what my tax bill would be inside the company if I paid out a bonus to reduce the corporation’s year-end profit, factoring in the employer’s share of EI and CPP. Then I looked at the difference between the scenarios, in terms of how much total moolah was being paid in income tax, and assessed my cash flow situation to determine whether my company could weather the strain of one big whopping tax bill, or a series of smaller payments in the last 4 months of the year.

The actual numbers are not the point of this… I’m not going to tell you what’s working for me, because that might be construed as tax advice and I am completely unqualified to do that. I just wanted to tell you about that super-handy link, and also demonstrate that when it comes to tax planning, there is SO much to take into consideration. I’m pretty ballsy when it comes to making assumptions that I know enough about taxes to do this math for myself. Your mileage may vary!

I haven’t yet begun actually doing my corporate taxes, but since I use Quickbooks and have it set up with each account mapping to a tax line (that’s a function in Quickbooks’ account setup form), I suspect it will not be hugely difficult. I have done corporate income taxes once before and with a program like Quicktax for Business, it’s not that much of a headache. Also, the marginal savings in taxes do not make up for the accountants’ fees. When ya make money, ya gotta pay a foundational level of tax. That’s all there is to it. If I wanted to be tax-free I’d go live in the Caymans.

Hmm. There’s an idea.