When you start a company, one of the first things you need to do is figure out how you’re going to take money out. There are a few different ways to do this, and each has its advantages and disadvantages. In this post, we will discuss the different tax-efficient ways to withdraw money from your company. We will also provide some tips on choosing the best method for your business!
Pay Yourself and Your Family Members
One of the most tax-efficient ways to withdraw money from your company is to pay yourself and your family members. This can be done in a few different ways, such as paying yourself a salary, taking dividends, or using share buybacks. Each of these methods has different tax implications, so it’s important to choose the one that best suits your needs.
Another advantage of this method is that it can help to reduce the amount of money that you owe in taxes. For example, if you pay yourself a salary, you will only be taxed on the amount of income you earn. However, if you take dividends, you may be subject to double taxation (both at the corporate and personal level). The downside of this method is that it can be difficult to access the money you’ve withdrawn. For example, if you take dividends, you may need to wait until the end of the year to receive them.
Pay Out Taxable Dividends
Another option for withdrawing money from your company is to pay out taxable dividends. Dividends are a portion of the company’s profits that are distributed to shareholders. When you receive dividends, you will be taxed on them at your personal tax rate. The advantage of this method is that it allows you to access the money right away. The downside is that you will be subject to double taxation (at corporate and personal levels).
Pay Out Capital Dividends
If you have a Canadian-controlled private corporation (CCPC), you may be able to pay out capital dividends. Capital dividends are a portion of the company’s equity that is distributed to shareholders. When you receive capital dividends, you will not be taxed on them. The advantage of this method is that it allows you to access the money right away and you will not be taxed on it. The downside is that it can only be done if you have a CCPC.
Repay Any Outstanding Shareholder Loans
If you have borrowed money from your company, you will need to repay the loan before you can withdraw any money. The advantage of this method is that it allows you to access the money right away. The downside is that you may have to pay interest on the loan.
As you can see, there are a few different ways to withdraw money from your company. Each has its own advantages and disadvantages. Choose the method that best suits your needs and be sure to consult with a tax professional to ensure that you’re taking advantage of all the tax breaks available to you! If you have any questions, feel free to contact our tax accounting firm today.
