All that work for nothing!

[jj]

Just venting...

So, I made myself a goal last year to work hard and save up a certain amount of money. I felt very good about working hard and in the end, in December I made my goal. I thought... I'll invest it and put it towards my retirement eventually. Got #2 in my company. Yay!

Then I got my tax statement today.

After working my butt off.... being extremely diligent, taking care of my clients, not taking care myself, gaining weight, getting out of shape, shuttling my kids around, answering phone calls, working extremely long hours...


I have nothing, nada, zip, zero. Yes, in working it out today with my tax lawyer: 30% went to my business expenses (advertising, marketing, employee, supplies - no frivolous expenses); 30% went to just living (I don't live a big life at all); and, 33% is going to income taxes and about 2% is going to GST. So, all that hard work went to pay the government I have about $2000.

Am seriously considering why I am working at all.

(sigh)

[CAORBUST]

Congrats on making #2 and I'm sorry to hear the end result wasn't the greatest. I've read all the raves about you on KIV so people definitely appreciate all you do for them. While I know $2,000 is not much, #2 is a huge wow and it really shows how fantastic you must be at your job AND, you are a great mother with a great family.

P.S. I'm just wondering, is a tax lawyer the same as an accountant? Do they do any tax planning to help you reduce your taxes?

[jj]

An option is to incorporate... then I pay myself from that. I talked with the tax guy about it today. He didn't know a lot. It wouldn't change a lot, just how much I was taxed personally. I'd still be paying out the nose.

To be truthful, I have been too busy. time to start.
Jane

[CAORBUST]

I'm just wondering if your tax guy mentioned anything about being a Personal Service Business.

If not, I'd ask him if you would be considered one. If you are, it may not be worth it to incorporate, especially since I can't see the liability protection needed for a Realtor being too high, unlike doctors, lawyers or accountants.

I'm dealing with someone going through this and it has been a hassle for them as it has been costly. For them, the liability protection was a good idea, and incorporating was also required by the clinic. The time and effort is far greater then not incorporating and you are already a busy busy person.

Anyways...this is just something to think about when you have time to decide.

[metaldwarf]

I can't help but think you need to talk to a better accountant.

As someone who earns commissions, I know first hand that you have to pay the taxman upfront.

I didn't see where you stated your income but lets assume $100,000 Gross.

30% went to business expenses, 30% to living and 33% to taxes?

Business expenses are deductible, so if you had $30,000 in expenses, your taxable income is going to be $70,000. Which is a tax bill of $14,974 your top marginal tax bracket is 29.7% with an average tax bracket of 21.39% of taxable income, or only 15% of her Gross pay. Nowhere near 33%.

Your NET after tax, after expenses income should be a hair over $55,000

Am I missing something?

*DISCLOSURE: I AM NOT AN ACCOUNTANT

EDIT: Incorporating doesn't help reduce your income taxes as much as it used too. Paying yourself from a corp is going to work out almost exactly like earning it personally. Having a corp does have other benefits like being a tax shelter for retained earnings, and being able to income split by paying a spouse or children a salary out of the company.

Even though this is my first post and I have no cred on this board i can recommend Eric Solbakken as a good business accountant. http://www.solbakken.ca/

[Guest]

It really wasn't for nothing though if you lived off your income? Most people I know are happy to break even at the end of the year.

I am not sure where you get the 33% tax though. Everyone pays 20% on the first approx. $40,000 and then 30% only on the difference between that and about $80,000.

The great thing about being self employed is that you can write off a lot off your taxes including all your business expenses, part of you mortgage, hydro if you work from home, etc. Maybe you need a better accountant?

[tiptoetulip]

I am not sure where you get the 33% tax though. Everyone pays 20% on the first approx. $40,000 and then 30% only on the difference between that and about $80,000.

Federal:

15% - first $40,726
22% - over $40,726 up to $81,45
26% - over $81,452 up to $126,264
29% - over $126,264

Next year it's:

15% on the first $40,970 of taxable income, +
22% on the next $40,971 of taxable income (on the portion of taxable income between $40,970 and $81,941), +
26% on the next $45,080 of taxable income (on the portion of taxable income between $81,941 and $127,021), +
29% of taxable income over $127,021.

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html

BC Provincial:

5.06% on the first $35,859 of taxable income, +
7.7% on the next $35,860, +
10.5% on the next $10,623, +
12.29% on the next $17,645, +
14.7% on the amount over $99,987

http://www.cra-arc.gc.ca/tx/ndvdls/fq/t ... provincial

[Guest]

I am not sure where you get the 33% tax though. Everyone pays 20% on the first approx. $40,000 and then 30% only on the difference between that and about $80,000.

Federal:

15% - first $40,726
22% - over $40,726 up to $81,45
26% - over $81,452 up to $126,264
29% - over $126,264

Next year it's:

15% on the first $40,970 of taxable income, +
22% on the next $40,971 of taxable income (on the portion of taxable income between $40,970 and $81,941), +

BC Provincial:

5.06% on the first $35,859 of taxable income, +
7.7% on the next $35,860, +

Mar that is what I said?

The higher brackets are only on the difference between the two though so if you make $60,000 you pay 15%+5% (20%) on the first $40,000 = $8000 and then 29.7% (22+7.7) only on the next $20,000 = $6000 (Total 8+6 = $14,000).

That is a big difference from thinking you are paying 30% on the entire $60,000 though which some people (like my parents) are under the misconception you would be. They were so afraid to hit the 2nd tax bracket because they thought it would affect the entire amount earned.

[jj]

I had more disposable income when I worked as teacher.

I will have no pension through real estate, when and if I ever stop finish; and I was planning on establishing a reserve fund for myself in case I get sick or something. I also wanted to be able to afford to put my kids through university. we do have a RESP set up for them that we have contributed to.

To be honest, I think what was the most disappointing to me was that I didn't pay as much attention to my kids as I was working so much and I missed stuff that maybe, in retrospect, wasn't so important. I feel a lot of responsibility when I sell someone's house or help them buy. I go to the nth degree in detail. I know they appreciate it...

I had a heart-to-heart with my Step Mother this evening. She told me that if I had remained as a teacher and gone into admin (where I was heading), I would still be working as hard. She's probably right. I am a workaholic.

It was just disappointing to realise I was giving up that much personally....

[Amum]

Find an accountant that CAN talk to you about incorporation..

Each situation is unique, but if you are over the $80K mark (ish) then it's quite possible you're better off incorporating.

We are - we don't 'pay' ourselves from the corp, so technically we are un-employed. We just draw dividends.

We do not then get RRSP room or pay into CPP etc.. - but again, talk to your accountant. If you're saving thousands in tax, you'll have extra $$ to put away for retirement.

This year, hubby and I drew over $100k in dividends and I just finished our personal taxes - combined we owe $1200. That's it - for the year.

Corporately we will need to pay about $25000 in tax and fees - but that is a FAR cry from what we used to pay as employees..

It sure makes sense for us..

Good luck Jane! your hard work will pay off.

Christine