Should I Invest Inside My Corporation?
How much of the original capital will you retain?
If you keep your profit within your corporation and invest it here, you will retain a large portion of the original capital to invest. By keeping a larger portion of the original capital and paying less in tax out of the gates, your investment can grow larger, and more quickly because of the size of your original investment.
There are a number of things to consider when making the decision of whether to invest inside or outside of your corporation.
What will the tax rate be on the investment income?
The tax rate on investment income (dividends and capital gains) is much higher than the tax rate on active business income. Investment income is taxed at a rate of 50% while active business income is taxed at a lower corporate tax rate.
What are the risks of investing?
There are risks associated with both investing inside and outside of your corporation.
When you invest outside of your corporation, you are subject to personal tax rates. This means that if the investment fails, you could lose a significant amount of money.
If you invest inside your corporation, you are subject to corporate tax rates. This means that if the investment fails, you may not be able to deduct the losses from your personal income.
What are the benefits of investing?
The potential rewards of investing inside your corporation are greater than the potential rewards of investing outside your corporation.
When you invest outside of your corporation, you are subject to personal tax rates. This means that if the investment is successful, you will keep less of the profits than you would if you had invested inside your corporation.
What is the best option for me?
The best option for you depends on your individual circumstances. You should speak to a tax professional at BBS Accounting CPA to determine what is best for you.