Limited versus Propreitor

[storm1972]

Hey fellas i posted a topic a while back regarding the thought of being a limited company versus a proprietorship (which i am now), now i know there has to be a pile of people on here that have experience in both, so i have a few questions, as hearing much of it from my accountant is like listening to a lawyer cite paraphrases from a law society book. Im under the understanding that as a proprietor or limited company the way to get into a lower tax bracket (not this 50% b.s im in now) is to run as much through your company account as possible and within reason correct? If so you also want to show a very limited income so your not paying a high monthly amount on what your paying yourself each month.
Point being is how in the living bejesus do you accomplish this, i mean if your paying yourself a very low income each month in order to keep your monthly tax amount within a manageable amount, what in the heck are you living off of for basic expenses like groceries, kids sports, entertainment, housing, utility bills, vacations( not that they happen very often here), all that jazz. Everyone i talk to that is a limited company says they pay next to jack chit in taxes (like 15 % or close), and yet are able to vacation all over the place, have bikes, quads, and and have a great sustainable lifestlye, you cant do this all while writing yourself a cheque for 3-4 k a month? So my question is how are you sustaining the basic needs in life, while still still having a nice lifestlye, and not being taxed to the point of no return? I am at a complete loss on how you all are doing this...
For the love of god could a few of you that are , or have been in this situation and worked around it explain it to me in plain english how you accomplish this

 

[Polarblu]

Ok to start once you start a corporation, you start selling your stuff to it. Your mortgage is payed by the company as it is an office, your shop is rented to the company as it is a workplace. Depending on employees your vehicles are rented or leased to the company. So now you have freed up 3 grand a month so your 3 grand income is easy to live with and its legal!! Toys are difficult as you need to use them for work, as a rental or as charged out to do your job. People get in trouble with this as it has to be on an invoice as charged out and more than once a year!

 

[Lowlife82]

Agree with Polarblu. Depending what u do for work depends on the toy write off. I contract mechanical work so I bought the quad and sled through the business to access "remote lease sites". I'm 6 years being a limited company and it's worked for me so far.

 

[storm1972]

You cant pay your entire mortgage through your company, only a portion of it which is what i do as a proprietor , i think i did 25% this year, which includes office and garage, as we live in town , i don't have a huge shop, all i have is a garage. I have my truck leased, (100 percent write off), my utility trailer i use to haul all my tools and material with is a lease, again 100% write off. I have 1 person right now that works for me, and is contract labor , he takes care of his own taxes , ccp, ei ect.. Basically right now I stroke my self a cheque bi weekly for 2k a pop, but then at the end of the year I pay 50 % tax on everything after expenses ect are all dealt with. Not saying its not doable but if you have any lifestlye , toys , camping ect 3k a month doesnt pay for much these days, so this number is a little inaccurate i think. if your mortagage is say 1000 a month, your utilities are say another 600, insurance another 2-300, groceries, sporting event like the kids hockey, or ballet or whatever, 3 k a month will not cover these costs... So back to my original question what are you paying for it all with, and still being able to show very little income? Aside from leasing a new vehicle and having more writeoffs for your company in which i cannot do anymore as i dont need anything more for my company, (i dont have room) how are you all doing this??

 

[Open Season]

When I was running my company I would buy things through it and even if the company couldn't write them off it still payed a lower tax than if I had taken the money personally to buy the same things

 

[ferniesnow]

Maybe another accountant who can come down to your level and work for you instead of the government. In other words, within the legalities, get as much for you as possible.

 

[kbrunlees]

you become a director of your company, I dont get paid by my company at all but I do get paid as a director different tax bracket, your wife would also be a director so now you have income splitting which reduces your taxes and makes hers go up but in the long run less taxes. You do have to be careful about what you run through the company, I am in the security industry and I am pretty sure buying a quad or a sled would not fly if the Auditors decided to dig. I know I have seen a number of people leasing Escalades and using them for billboards, what ever. As long as nobody asks you are good but if you get audited look out.

 

[Polarblu]

You cant pay your entire mortgage through your company, only a portion of it which is what i do as a proprietor , i think i did 25% this year, which includes office and garage, as we live in town , i don't have a huge shop, all i have is a garage. I have my truck leased, (100 percent write off), my utility trailer i use to haul all my tools and material with is a lease, again 100% write off. I have 1 person right now that works for me, and is contract labor , he takes care of his own taxes , ccp, ei ect.. Basically right now I stroke my self a cheque bi weekly for 2k a pop, but then at the end of the year I pay 50 % tax on everything after expenses ect are all dealt with. Not saying its not doable but if you have any lifestlye , toys , camping ect 3k a month doesnt pay for much these days, so this number is a little inaccurate i think. if your mortagage is say 1000 a month, your utilities are say another 600, insurance another 2-300, groceries, sporting event like the kids hockey, or ballet or whatever, 3 k a month will not cover these costs... So back to my original question what are you paying for it all with, and still being able to show very little income? Aside from leasing a new vehicle and having more writeoffs for your company in which i cannot do anymore as i dont need anything more for my company, (i dont have room) how are you all doing this??

I have multiple services so the bookkeeping makes the house a write off since clients are seen there, the mechanical makes the shop a write off. These are shown as rent, split up as per the services. The hotshot service makes fuel and insurance a write off. I even write off dog food and vet bills as it is a guard dog. I dont have kids so i cant speak for that, but i can say get them a social insurance number and make them an employee. My parents did that i was a secretary at age 12. Also having livestock is how my parents payed into a lower tax bracket as it was a farm, sheep and chickens are the easiest and keeps the kids out of trouble and leads to a strong work ethic.

 

[storm1972]

you become a director of your company, I dont get paid by my company at all but I do get paid as a director different tax bracket, your wife would also be a director so now you have income splitting which reduces your taxes and makes hers go up but in the long run less taxes. You do have to be careful about what you run through the company, I am in the security industry and I am pretty sure buying a quad or a sled would not fly if the Auditors decided to dig. I know I have seen a number of people leasing Escalades and using them for billboards, what ever. As long as nobody asks you are good but if you get audited look out.

You said you become the director which is exactly what my accountant had said as well, you also said you dont get paid by your company at all but you are paid as the director... who pays you as the director the company correct? If so that is the same as being paid by the company is it not? All tthe stuff i run through my company is legit, lumber , tools, fuel maitenance ect, did half of my quad for snow removal , but other then that its all legit. Im not sure i understand this "income splitting thing" as going limited I am the director/ 100 percent shareholder of the company. Just seems as though no matter how much i try , no matter what I do im screwed eith way in regards to trying to pay down any personal debts, if i pay myself more i pay more taxes then i already do, most of the people i have talked with that are limited pay next to nothing for taxes and are still able to pay their basic needs and personal debts down in some way, all while showing a very limited income .

 

[storm1972]

I have multiple services so the bookkeeping makes the house a write off since clients are seen there, the mechanical makes the shop a write off. These are shown as rent, split up as per the services. The hotshot service makes fuel and insurance a write off. I even write off dog food and vet bills as it is a guard dog. I dont have kids so i cant speak for that, but i can say get them a social insurance number and make them an employee. My parents did that i was a secretary at age 12. Also having livestock is how my parents payed into a lower tax bracket as it was a farm, sheep and chickens are the easiest and keeps the kids out of trouble and leads to a strong work ethic.

Ok i see your point on the mortgage thing, although im not able to accomodate that. I have a small construction/renovation company which has grown and likely still will grow, i dont want any other services or companies so I am unable to do the same thing with regards to the mortgage.

 

[ferniesnow]

I have a proprietorship and it is not in my best interests to do a limited company for various reasons. You doo need to get another "professional opinion", one that you understand. The one thing that I will add, and I am not a professional in the accounting field so check it out, is that you pay less tax on dividends than you doo on income. Directors, etc can get paid with dividends. Part of your mortgage, taxes, hydro, etc. can all be part of your expenses.

You said, "you pay yourself bi-weekly $2k a pop" and that is only $4k/month or $48,000/year. How doo you end up paying 50% income tax?

 

[Murminator]

Just make sure you want to commit all that stuff to your business to write off some of it, cause if the company goes south they will take everything you "bought" for business reasons cars, trucks, sleds, quads, offices(houses). I know some people going through that came and took everything last I heard they were going after the house they cannot take the house but they were going after the equity in the house. Now everything has turned around for them business is booming for they but they cannot buy equipment they buy in other peoples names and "rent" it from them, and have to pass on big contracts in favour of cash money cause the gov't still wants more. If it is a small company and your just trying to get a bit a free money back it isn't worth it sometimes it is best to leave what is yours is yours and what is the companies is the companies have a line drawn in the sand. Accountants are just as bad lawyers they will show you the loops holes to stick you head through to hang yourself for a buck....just sayin

 

[storm1972]

I have a proprietorship and it is not in my best interests to do a limited company for various reasons. You doo need to get another "professional opinion", one that you understand. The one thing that I will add, and I am not a professional in the accounting field so check it out, is that you pay less tax on dividends than you doo on income. Directors, etc can get paid with dividends. Part of your mortgage, taxes, hydro, etc. can all be part of your expenses.

You said, "you pay yourself bi-weekly $2k a pop" and that is only $4k/month or $48,000/year. How doo you end up paying 50% income tax?

well this year it works out to 36% in tax that i have to remit back to the govt., the 50 % is the projection that if the company continues to grow any this is where it will be at next tax season, not to sound like an idiot but im a hands on person that doesnt know much about the paperwork end of the business, which is why i just keep all receipts and give them to her. I do all the labor end of it, the contract signings, meetings with clients ect, but im stoooopid when it comes down to the paper end of it lol. Like the dividends part you mentioned, i have not got a clue what this means? A lump sum you can pay yourself once a year? Or is it something that can be done on a regular basis.And your right i do need a professional opinion and even second opinion on it, i just thought with the amount of folks on here i would get a better understanding on how they are minimizing their incomes while running day to day business, and still being able to pay the basic needs in life without writing themselves a check every 2 weeks for 3k or more, and not paying so much tax on it.
As a realistic person I am looking at this from the outside of the glass with no actual facts or knowledge, and the way i see it these People that pay next to nothing in tax and manage a a very nice lifesty, le have supplemented their household income in some way , shape or form, without having to write themsleves bigger cheques every month or week.

 

[kbrunlees]

When you set up your company did you list Sunshinesmiles as a director? if so she can be paid dividend just like you. Dividends are different from paychecks. You cannnot reduce your pay to a point of paying nothing the only way that can happen is if your expences exceed your income( your broke) you can do this for two years but if you do it for more you will get audited and then the poo hits the fan. You should talk to a good accountant who can explain all this properly and get the best bang for your buck. I am not sure I would want to be involved with anyone that claims that they pay not taxes as it has to be accounted somewhere, be it buisness or personal the money has to show up somewhere. Been self emplyed for 14 years and the wife for 16 and it has been the best thing we did. We make damn sure that we account for everything and keep everything above board so as not attract the attention of Revenue Canada.

 

[storm1972]

When you set up your company did you list Sunshinesmiles as a director? if so she can be paid dividend just like you. Dividends are different from paychecks. You cannnot reduce your pay to a point of paying nothing the only way that can happen is if your expences exceed your income( your broke) you can do this for two years but if you do it for more you will get audited and then the poo hits the fan. You should talk to a good accountant who can explain all this properly and get the best bang for your buck. I am not sure I would want to be involved with anyone that claims that they pay not taxes as it has to be accounted somewhere, be it buisness or personal the money has to show up somewhere. Been self emplyed for 14 years and the wife for 16 and it has been the best thing we did. We make damn sure that we account for everything and keep everything above board so as not attract the attention of Revenue Canada.

Well right now my company is sole proprietorship, i havent gone limited as of yet, so no sunshine is not a director or shareholder of any sort. How is a dividend different then a paycheck. And i know people in this position that im not going to say they dont pay taxes, but they may minimal tax, not anywhere near the 35 - 50 percent range. . And yes i understand the part that your expenses cant exceed your income, that makes normal sense, as you have to have some sort of income, for a business to survive and not get audited. I guess what im getting at is I dont get how the heck people are able to sustain a business & basic home needs (ie mortgage, grub, utilities, all that jazz) & and this is the big kicker pay down any sort of personal debt .... without the company (myself in this instance) writing bigger monthly cheques, which your going to pay more tax on.
The more income i show the more tax i pay, stands to reason, so if i have a personal credit card that i want to pay off, i have to write myself a company cheque which makes my income go up therefore my tax bracket. just frusterated and seems like im stuck in a damn circle, and cant pay down any personal debt without cleaning out the company acct, and therefore having zero left in there to pay back to the mighty greedy govt. lol >>>bangs head against wall ..

 

[kbrunlees]

Have you got a good accountant? They can help you out big time to reorg your business and personal finances to get you on track. I know what you mean on the financial front but you might have to bite the bullet and either consolidate or shut down your spending except for the bare essentials, yeah easier said than done. The income sharing worked really well for us when my wife was making far more than me but now we are just about even so a mute point.

 

[Cat Man]

The first year of running your company you will pay out more in taxes as over 70% of first time company owners all seem to pay off their debt as soon as possible. The 1st year will hurt but still paying alot less in taxes than you would be working for someone else.
Guilty here as well, once you get your personals in order the next year you can concentrate on building company worth. Keep in mind as a sole proprietor any company fault or say bankruptcy comes back on you and all your worldly possessions. LTD companies it all falls back onto the company, your personals are yours.
The 2nd year take what you paid in taxes and put that away equally every month and at years end you won't be worrying about coming up with the lumps sums and your taxes will be hopefully lower and you'll get a bonus back.

 

[Polarblu]

The proprietorship is a problem right off, as you are on the line for anything and everything. You want a corporation so you are insulated from liabilities. This also sets your income and the company as distinctly different entities. Even though i have a bookkeeping service as part of my outfit i pay 5 grand a year to an accountant to make sure everything is above board. In the end the accountant pays for themselves, and i sleep well at night!

 

[storm1972]

Have you got a good accountant? They can help you out big time to reorg your business and personal finances to get you on track. I know what you mean on the financial front but you might have to bite the bullet and either consolidate or shut down your spending except for the bare essentials, yeah easier said than done. The income sharing worked really well for us when my wife was making far more than me but now we are just about even so a mute point.

Well i dont know if my accountant is per say a good accountant or not, i think she does good, but dont have anything to really compare with. I guess maybe a financial advisor or another accountant could review my last tax info and give me some ideas on how to accomplish this task. Thanks for your tips , i will keep trying to figure this chit out

 

[storm1972]

The first year of running your company you will pay out more in taxes as over 70% of first time company owners all seem to pay off their debt as soon as possible. The 1st year will hurt but still paying alot less in taxes than you would be working for someone else.
Guilty here as well, once you get your personals in order the next year you can concentrate on building company worth. Keep in mind as a sole proprietor any company fault or say bankruptcy comes back on you and all your worldly possessions. LTD companies it all falls back onto the company, your personals are yours.
The 2nd year take what you paid in taxes and put that away equally every month and at years end you won't be worrying about coming up with the lumps sums and your taxes will be hopefully lower and you'll get a bonus back.

See this is kind of what im trying to get at, my company is relitively new, it has grown since i started it. Basically working construction building homes for a contractor and was getting bout 35 bux an hour, worked out to about 50-60 k a year, now i have become a contractor myself doing the exact same thing and on my own ran 130k through the company so basically doubled income on paper, but yet still only paid myself every 2 weeks a bit more then when i was working for someone else. (hopeing to pay down some personal debt) well that isnt working, and the money left over in the company acct because of work done , completed , paid for ect... i now have to give back to the government and then some lol. See a circle?