Welcome to our blog site

Thank you for visiting. This blog is sponsored by Accounting Troubleshooters, a network of bookkeeping and accounting professionals. Here, you will find tips and advice on all business aspects including marketing, sales, finance and e-commerce.

Accounting Troubleshooters provide business advice, coaching, training as well as bookkeeping and accounting solutions for small and microbusinesses. Its mission is to educate businesses with sound financial concepts and provide them with the financial tools to manage their business effectively.

Allowable child care expenses for 2012

What is the allowable child care deduction for 2012?

CRA defines the overall maximum amount that a taxpayer can deduct for a tax year for each eligible child. The maximum amount to be deducted is dependent on the child’s age, physical and mental condition.

The annual child care expense allowable deduction is:
• $7,000 for each child under 7 years of age at the end of the year;
• $4,000 for each child over 6 years of age at the end of the year and under 16 years of age at any time during the year; or
• $4,000 for each child over 15 years of age throughout the year who has a physical or mental infirmity and is dependent on the taxpayer, the taxpayer’s spouse or common-law partner.

Salary or Dividend

If you own a corporation, as a shareholder, you have the option of paying yourself a salary or dividend.

There is no simple answer to this question, it depends on a number of factors;
The shareholder/owner
- income level
- cash flow requirements
- RRSP and TFSA contribution room
- age
The Company
- forecasted income for the year
- any other shareholders

Advantages/Disadvantages of paying salary
Advantage:
- contribution to RRSP (income shelter)
- contribution to CPP
- income splitting with family members
Disadvantage:
- taxable at 100%. Dividends are taxed at a lower rate.
- business owner pays both employer and employee portions of CPP
- unable to carry back a business loss in future years

Advantages/Disadvantages of paying dividends
Advantages:
- dividends are taxed at a lower rate
- privately controlled Canadian corporation pays a much lower tax on the first $500,000 income (small business limit)
- save money on CPP contribution (about 10%) on both employer and employee share

Disadvantages:
- no CPP contribution towards a retirement plan
- no RRSP contribution room
- no personal tax deductions such as child care expenses (which is related to earned income)

The solution is usually a “Mix of Salary and Dividend” to avail of the best tax advantage. The decision is best made with the professional advice of an accountant or financial planner who reviews your personal tax situation.

-article contributed by Accounting Troubleshooters, North Vancouver

Related Posts with Thumbnails

Powered by WordPress | Designed by: NFL Schedule | Thanks to Rush Tour, Download Premium WordPress Themes and Free WordPress Themes