Reducing Taxes on Un-Needed Income
Every year that you are a realtor, you are going to put money into four piles.
- Taxes
- Business Expenses
- Personal Expenses
- Unneeded income
This unneeded income isn’t actually unneeded, but it’s the best way I could frame it. It’s money that doesn’t have a specific need attached to it and will be used for savings or to purchase your next property.
If this money leaves your corporation and you save personally, you have to pay personal income taxes to remove it from the corporation. If you are already drawing $100,000 from the corporation for personal expenses, then you are looking at an income tax rate of 43.41% for the next $50,000 that you draw from the corporation. That’s a tax bill of $21,705.
If you leave the money in your corporation and save there, the corporation only needs to pay 12.2% income tax to hold it. That’s a tax bill of $6,100, saving you $15,605.
If you don’t need the extra money, it’s better to save in the corporation. You’ll be able to start with more, and then be able to do more with it.