Bob GauvreauAsk Bob Gauvreau Questions Based On His Training

How to Reduce Your Business Taxes with the Correct Structure in the US and Canada

8 Feb 2024 · 1 min

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1:01

Bob Gauvreau explains that the most effective tax-minimization step is choosing the correct business structure. He contrasts sole proprietorships (where business income is reported on a personal return, with marginal rates “upwards of 50%” in North America) with corporate structures: in Canada small business corporate tax rates are cited around 12–15%, and U.S. C corporations around 20%. He advises switching away from sole proprietorship/partnership if your personal marginal tax rate exceeds the corporate rates (20% U.S.; 12–15% Canada).

Questions this video answers

Upwards of 50%.

Approximately 12% to 15%.

Approximately 20%.

If your personal marginal tax rate is higher than 20% (U.S.) or higher than 12–15% (Canada).

Chapters

So let's talk about tax minimization strategies. The greatest tax minimization and proactive plan you can put in place is making sure your business structure is correct for you. So there's a few options. We have a sole proprietorship which essentially operates a business where I am the business and I file the business taxes on my personal tax return. Those tax rates across North America can get upwards of 50% on that income. That's not a great outcome for us. When we look at the small business taxes and using a corporate structure in Canada you're at somewhere around 12 to 15%. In the United States with a C corporation you're looking at somewhere around 20%. If your personal marginal tax rates are higher than 20% or in Canada 12 to 15%, you should be using a different structure than a sole proprietorship or a partnership. Very important to get this structural piece right. This could be the number one way to save tax money for you and your business.