Tax reduction is a prime concern for many small businesses, especially those just starting up or looking to make a change in the company; the difference between two rates of taxation may mean the difference in available capital, or even in whether the business stays afloat for another year. While the tax realm in general is usually the responsibility of an accountant, business lawyers can also be of assistance in mitigating tax rates in some situations.
- Tax Deferral – Tax deferral is a one method of reducing a tax rate, and a business lawyer can often offer a good deal of help here. Overall, tax deferral is the transfer of earnings away from an individual and onto a corporate business entity. An incorporated business can earn income just as a person does, but corporate taxes tend to be a great deal lower than personal income taxes. Therefore, money earned by a corporation and taxes at a lower rate may be more profitable for the company than money earned by the owner or owners and taxed at a higher rate.
- Income Splitting – Income splitting is a strategy of tax reduction also affected by incorporation. For example, a married person owns a successful, incorporated business and also happens to have a spouse whose income is quite low. The business owner’s income is much higher and is therefore taxed in a higher tax bracket. The owner’s income may be split, by a variety of means, between the owner and his or her spouse, and now both earnings are in a medium tax bracket. A business lawyer will be able to determine whether such a strategy will work in your situation; often, income splitting saves small business owners a great deal of money through tax reduction.
- Tax Minimization – This is the practice of minimizing your business’ actual tax rate by incorporating (because corporations are subject to lower tax rates than individuals). In other words, if you incorporate, your tax rate will be lower than if you don’t, so your business pays less tax automatically by incorporating.
If you need help with tax reduction in Toronto ON, contact us at Grinhaus Law Firm. We offer high-quality legal services, flat-rate pricing, and free consultations. Give us a call today!