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Eight Critical Questions Every Business Owner Should Answer

There are many strategies that can help small business owners reduce taxes, increase retirement income and create an effective succession plan. Following are eight critical questions to help determine which strategies may be appropriate for you.

By Allan Morse
Question 1

Have you incorporated your business? If you are the owner of a sole proprietorship, you may be wondering if it makes sense to incorporate. A number of factors will go into making your decision, most of them tax-related. This includes weighing the loss of tax deductions granted to sole proprietorships versus the income-splitting and succession-planning opportunities incorporation enables.

Question 2

Have you discussed tax minimization strategies with your tax advisor? If you privately own an incorporated Canadian business, there are many different tax-planning strategies that can benefit you and your family, such as paying dividends to a spouse and adult children.

Question 3

Do you have excess cash in your corporation? If so, your first step is to determine whether you have a business need for the cash. If you do, choose an appropriate investment solution based on your time horizon. If you don't need it for the business, determine the most tax-effective ways to either withdraw it or utilize it for future goals, like estate or retirement planning.

Question 4

What would happen to your family and your business if you passed away or became disabled today? Evaluate whether you have adequate insurance in the event of death or disability. Also consider your plans for passing along control and ownership of your business, including your buy-sell agreement.

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Question 5

Do you have enough assets to meet your retirement income needs? Consider creating or updating your financial plan to determine if you will have adequate assets and income to meet your tax, retirement and estate planning goals.

Question 6

Are you aware of opportunities to increase retirement income and reduce corporate tax? As an owner of a corporation, you have several strategies available to you that can help you to not only reduce or defer corporate income tax but also enhance your income in retirement.

Question 7

Do you plan on selling your business to someone outside your family? There are several issues to consider, including whether the purchaser is interested in buying the assets or shares of your business. If they are interested in buying the shares, you may be able to claim a capital gains exemption.

Question 8

Do you plan on passing your business to at least one of your children? There are many considerations—everything from ensuring your children have the necessary aptitude and knowledge for running the business to determining strategies to minimize taxes.

Consider these strategies in order to reduce your tax bill, increase retirement income and effectively plan your estate.

This article is supplied by Allan Morse, Vice-President and Investment Advisor with RBC Dominion Securities Inc. Member CIPF. This article is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement a strategy. Allan can be reached at 902-628-3777 or at allan.morse@rbc.com.

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