Forum Discussion
Hi Robert, you had mentioned that leaving money in the business vs paying out bonuses at the end of the year could be a good tax strategy. Could I ask if that money could just be left in a high yield savings account or do we need to "show" that it was reinvested into the business? Not sure if my question is clear?
- JeffCJ9 days agoContributor 2
I had a similar question, and was in addition wondering if it makes a difference what kind of business structure you have? E.g. does this work as a sole proprietorship?
- Robert_Gauvreau6 days agoContributor 3
JeffCJ, yes, it 100% only works if the business is paying tax as a corporation. A sole proprietorship will not work as you are paying tax on the income of the business (not on how much you take out) in a proprietorship. A corporation has a reduced rate of tax on business income, and there is a supplementary tax on withdrawing the funds from the corporation. If you leave it in the corporation, you won't have to pay the supplementary tax.
- Robert_Gauvreau6 days agoContributor 3
Hey Jaf. Happy to help. There is no requirement to justify what you are investing in. The only needed element is that the entity is a corporation, and that the funds ware not withdrawn personally. A high interest savings account would work. Just a word of caution that all interest is taxable as passive investment income which is high. Another recommended investment option would be purchasing some sort of index fund where you only have to pay tax on the eventual sale assuming there is some type of gain (no tax on the accumulated gain on an annual basis).
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