Our firm started off the new year with a few appointments that I think are worth sharing on this blog. (Obviously, I’ll keep the exact details private.)

Essentially, both appointments were about the same situation when it came to their businesses. Their businesses are doing extremely well. Both of them are completely separate kinds of businesses, and they make a lot of money.

Both businesses make $100,000, and say for this example that the shareholder takes out $40,000 out of their company. Now that's fantastic from an accounting perspective because we can tax plan for that. We can keep them under the first tax bracket - 42,500 for dividends. (The actual bracket is more like 49,000) We could also bump that up to the top of the second tax bracket at 98,000 for, say, future planning.

The whole idea is to keep your income down, and keep your taxes down. That's a great scenario to have. The individual in this first scenario doesn’t need any more money to live. Their situation doesn't require them to need more money for their personal living, so they didn't take out more money than the $40,000. Good idea.

In the second scenario, let’s say that this individual also made $100,000. However, for this example, the shareholder takes out the full $100,000 from their company. 

Now, is that the right thing to do from a tax perspective? No. But from a life perspective, you can do whatever you want. As the owner of your business, if you want to spend all of your money from your business buying fancy cars or going on vacation, you go right ahead. That is completely up to you, but don't expect any tax planning. 

There's only so long that you can defer paying taxes on that money. Keep that in mind when you're taking money out of your corporation. I'm not saying that spending money on personal things is wrong, it just doesn't allow your accountant to do what they need to do.

If you want to go on vacations and buy fancy cars, and that's what makes you happy, then that's what you should do - regardless of how much money you're saving with taxes. Taxes are just one variable in life. You don't have to save taxes. I highly recommend it and we can help you do that, but you need to curb your own spending before any tax planning can actually happen. 

So if you're not talking to us here at Alberta Wide Virtual Accounting, make sure you're talking to your accountant. Make sure you're maximizing your benefits and maximizing your life, because that's always more important.