The Small Business Tax Help Blog

Question: I own a small business and would like to get some equity out of it. Dividend or lump sum wages?

I am unsure of the most tax effective way to get the money out. If I pay myself as a dividend, then I must pay business income tax on the equity. If I pay myself as wages, then I pay personal income tax on the wages. I am in a fairly high tax bracket (~$95000/yr) and the amount is $10000.

Answer: You can obvioulsy ignore "Mike L"'s suggestion, since (other than illegal false transactions) it offers no difference from your current dilema.

Without running specific numbers, it would appear that you will see little difference whichever way you choose to do this, and in fact, that is the intent of the tax laws, that income from either method will be roughly equivalent.

Since your income is a little below the maximum RRSP contribution threshold, I would suggest you take wages, which will increase your present or future RRSP room.

Wyden posts tax reform

Senators Ron Wyden (D-Ore.) and Judd Gregg (R-N.H.) introduced Tuesday a proposal to vastly simplify the nation’s tax code by cutting the number of personal income tax brackets in half and flattening the corporate tax rate.

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