Episode
262
In the world of contracting, money management goes beyond just landing jobs and meeting deadlines. It involves smart financial strategies, especially when it comes to taxes. That’s why I brought on Bob Gauvreau, tax accounting extraordinaire, to share his secrets to keeping your tax bill dirt cheap completely legally. Here’s what you can do to slash taxes and keep hard-earned money in your pocket.
The first step in tax efficiency is ensuring you have the right business structure. Depending on your country, an LLC or a corporation can provide greater protection and better tax rates than operating as a sole proprietor. In the U.S., electing to file as a corporation can lock in a tax rate around 23%, whereas personal tax rates can be much higher. In Canada, incorporating your business can mean paying a much lower tax rate of around 12% on your business earnings.
Engage your family in the business to split income. If you have children, consider hiring them for legitimate roles within your company. This not only helps reduce the taxable income but also provides tax-free earnings to your children, up to certain limits. It’s a win-win situation where the business benefits from deductions, and the family, from tax-efficient income streams.
Several day-to-day expenses can be deductible if connected to running your business. These can include home office expenses, business-related vehicle costs, and meals (if they’re business-related, you'd want to claim the complete amount rather than the reduced rate for personal meals). It’s essential to keep precise records to take full advantage of these deductions.
If your goal is to pass the business on to your children or other family members, plan early to benefit from tax advantages. Setting up a family trust can allow various family members to use their lifetime capital gains exemptions, potentially saving hundreds of thousands in taxes if the business is sold. A proper succession plan can also smooth the ownership transition process, ensuring both the business and family relationships thrive.
By structuring your business intelligently, taking advantage of deductions and exemptions, and planning succession wisely, you can significantly reduce your tax bill next April. Feel free to reach out to Bob Gauvreau and I if you have any tax questions, and tune in next week for more game-changing tricks designed to put profit back in your tool belt!
Show Notes
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