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Strategic Financial Planning for Business Owners: A Tax Accountant’s Perspective

Introduction: As a business owner, it’s crucial to strategize how you compensate yourself. This involves more than just deciding on a salary; it’s about crafting a holistic approach to minimize taxes, maximize after-tax cash, budget effectively, and plan comprehensively for retirement.

Remuneration: Understanding remuneration involves examining how an individual is compensated. For small business owners, options include dividends, salary, and shareholder loan repayments, among others. Each type of remuneration has unique tax implications and can influence other financial planning areas, including retirement. A professionally crafted remuneration plan will consider all these aspects to optimize your financial position.

Tax Minimization:

Salary as a Corporate Deduction: Drawing a salary allows your business to treat it as an expense, thereby reducing corporate tax. Additionally, this facilitates contributions to the Canada Pension Plan (CPP) and generates RRSP room, enhancing your retirement savings.

Dividends from After-Tax Corporate Income: Dividends are distributed from after-tax corporate profits, leading to potentially lower personal tax liability.

Balancing Salary and Dividends: The choice between salary and dividends depends on your financial goals. If immediate cash withdrawal and retirement benefits (like RRSP room) are priorities, a salary might be preferable. Conversely, if you’re planning to reinvest profits back into the business, dividends can offer tax deferral advantages, access to lower tax brackets, and opportunities for income splitting.

Regularly reviewing and updating your tax strategy is essential for small business owners.

Budgeting: Establishing both personal and corporate budgets is key. This practice helps in planning cash flow and profitability, both for your business and personal finances. Annual budget preparation, followed by monthly comparisons against actual figures, is vital to identify potential financial challenges and opportunities.

Retirement Planning: Retirement planning is an area often overlooked by business owners. A robust retirement plan should be integrated with your budget and tax strategy, ensuring a comprehensive approach to financial security.

Shajani CPA’s Role: At Shajani CPA, we specialize in providing comprehensive plans in each of these areas. Our expertise allows us to craft a well-rounded strategy that aligns with your goals. Whether it’s optimizing your remuneration, minimizing tax liabilities, budgeting effectively, or planning for a secure retirement, our team is equipped to guide you every step of the way. Let us partner with you to turn your business success into personal financial security.

This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. ©2024 Shajani CPA.

Shajani CPA is a CPA Calgary, Edmonton and Red Deer firm and provides Accountant, Bookkeeping, Tax Advice and Tax Planning services.

Nizam Shajani, Partner, LLM, CPA, CA, TEP, MBA

I enjoy formulating plans that help my clients meet their objectives. It's this sense of pride in service that facilitates client success which forms the culture of Shajani CPA.

Shajani Professional Accountants has offices in Calgary, Edmonton and Red Deer, Alberta. We’re here to support you in all of your personal and business tax and other accounting needs.