October 22, 2015
Real estate investors, you might wonder whether it’s worth transitioning from sole proprietorship to incorporation. Do you spend the money to incorporate your business and bear the expense of hiring an accountant to file your corporate income tax return every year? Or do you save these fees and continue operating as a sole proprietor?
First, consider that the following apply to any business other than a Specified Investment Business or a Personal Services Business:
To start comparing, look at the tax breakdown for sole proprietorship vs. incorporation:
|Gross annual income: $120,000||Revenue: $120,000|
|Total deductions: $34,460||Incorporation fees: $1,200 (one time)|
|Net of taxes: $85,540||Accounting fees: $1,200|
|Savings: $10,000||Corporate taxes (15.5%): $18,228|
|Life insurance: $1,200*||Corporate income: $99,372|
|Net disposable income: $74,342||Net of taxes: $87,272|
|Company retains $13,000|
* More on life insurance below
Also, incorporated can take advantage of income splitting:
Getting back to life insurance—why is it so important? A universal or whole life insurance policy…
So, it’s in your interest to fund a life insurance policy as soon as possible with the extra savings available by incorporating.
Here are some key points to help you weigh your options:
|Better access to funding
Save money on accounting feesInsurance for liability protection
Potential losses against your personal income
|Lower taxes via income splitting
Limited liabilityCarry forward losses
Having to hire a creative mortgage professional
So long as you understand what will work best for you, and you develop a solid plan, you’ll be on the right track.
Questions? The CPAs at RealFile.ca and your Professional Mortgage Advisor at SafeBridgeFinancial.com will be happy to help!
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