is earning $50,000 better than $51,000?

[Electricute]

When I was in school I was under the impressiong that if you earned between 50,000 and 100,000 annually, then you would be taxed 50%, but you you earned less than $50,000 annually then you get taxed a lot less.

Sorry about the newbie question, but would you get the tax money back? If I earned $60,000 a year, would i only keep $30,000? whereas if i made $45,000 i would keep say $40,000?

can some1 pls clarify

[Carpe Diem]

If you make 100,000 your taxed at 1-50,000 @ 30% and the 50,000-100,000 @ 50%. (Not sure about the % or income brackets)

Someone correct me if I'm wrong. The #'s are not exact.

[m85d1]

When I was in school I was under the impressiong that if you earned between 50,000 and 100,000 annually, then you would be taxed 50%, but you you earned less than $50,000 annually then you get taxed a lot less.

Sorry about the newbie question, but would you get the tax money back? If I earned $60,000 a year, would i only keep $30,000? whereas if i made $45,000 i would keep say $40,000?

can some1 pls clarify

The more you made, the more you get to keep (not the percentage amount, but the dollar amount).

[BadDrafter]

The more you made, the more you get to keep (not the percentage amount, but the dollar amount).

There is an old proverb a boss told me once. It is better to make more money and pay more taxes than to make no money and pay no taxes.

Other than that I don't know anybody who makes more than $100,000 that is stupid enough to not declare themselves an incorporated business. Business taxes are far less than personal taxes and you can actually get your tax burden down to reasonable levels by using various tricks.

[knapper]

If you make 100,000 your taxed at 1-50,000 @ 30% and the 50,000-100,000 @ 50%. (Not sure about the % or income brackets)

Someone correct me if I'm wrong. The #'s are not exact.

Correct concept. For the OP, the $50K is taxed the same, and the extra $1K could be at a different rate.

[TrevorK]

Taxes are tiered. An example is below (And it does NOT use the proper tax percentages)

Say you'll be taxed, 30% for $1 -> $50,000 and 60% for $50,001 -> $100,000.

If you earn $50,000 you'll pay $15,000 in taxes (50,000 * 0.30).
If you earn $51,000 you'll pay $15,600 in taxes (50,000 * 0.30 + 1,000 * 0.60)


As you can see, it's a tiered system. Everything over $50,000 is taxed at a different rate, but it doesn't change that everything under $50,000 is taxed at 30%.

[sparkplug]

Federal tax rates for 2006:
$0 - 36378 = 15% tax
$36378 - 72756 = 22%
$72756 - 118285 = 26%
118285 and over = 29%

[ynot]

Federal tax rates for 2006 are:
15.25% on the first $36,378 of taxable income;
22% on the next $36,378 of taxable income;
26% on the next $45,529 of taxable income; and
29% of taxable income over $118,285.


Provincial taxes rates for Ontario are:
6.05% on the first $34,758 of taxable income, +
9.15% on the next $34,759, +
11.16% on the amount over $69,517

Here's the linky. (http://www.cra-arc.gc.ca/tax/individuals/faq/taxrates-e.html)

[mangotango]

here is a quick calculator

http://www.ey.com/GLOBAL/content.nsf/Canada/Tax_-_Calculators_-_2005_Personal_Tax

[Sylvestre]

it surprises me how many people still think that making more money i.e. going into a higher tax bracket means they will take home less.

as explained, you will never take home less after a raise. a worst case, you go into a higher marginal tax rate and instead of keeping 80% of that increase, you only see 70%. it's still more than 0% :)

[sparkplug]

If you work for a smaller company with more flexibility in your compensation package, ask for the equivalent in dividends (shares) instead of cash when you get a raise.

[Bullseye]

Other than that I don't know anybody who makes more than $100,000 that is stupid enough to not declare themselves an incorporated business. Business taxes are far less than personal taxes and you can actually get your tax burden down to reasonable levels by using various tricks.

I know lots of people who make over $100k, they can't simply just 'declare themselves an incorporated business'. They are employees, and there are reasons why they would not do this, even if it were allowed by their employer.

Also, business taxes are not 'far less' than personal taxes. The way it works out is that corporate taxes plus personal taxes on the salary/dividends drawn from the corp work out to be not much different from straight personal tax. Yes, a business gets more deductions, but these are for legitimate business expenses only, anything else would be entering into tax cheating territory. I assume these are the 'tricks' you refer to? You mean breaking the law?

[sparkplug]

Also, business taxes are not 'far less' than personal taxes. The way it works out is that corporate taxes plus personal taxes on the salary/dividends drawn from the corp work out to be not much different from straight personal tax.

You save CPP.
You also save EI because you're not going to fire yourself.
You'd be a shareholder drawing those dividends, which means you can have more than one shareholder receiving dividends and taxed at lower brackets. As I recall, you can draw dividends of approximately $40,000 grossed up without paying a penny in personal tax. There must be thousands of corporations in the country where entire families work in the "family business".

[Bullseye]

You save CPP.
You also save EI because you're not going to fire yourself.
You'd be a shareholder drawing those dividends, which means you can have more than one shareholder receiving dividends and taxed at lower brackets. As I recall, you can draw dividends of approximately $40,000 grossed up without paying a penny in personal tax. There must be thousands of corporations in the country where entire families work in the "family business".

Yes, there is always the if's, and's, or but's...

You only save CPP if you take straight dividends, and it's not always beneficial to do so (the millionaire I do the books for take a salary, as does his wife, and believe me, he's consulted tax accountants on it). Besides, CPP is a pension plan, not a tax, but lets not get into semantics.

Yes, you can use a corporation to income split...if you have a family to split it with, and if that family has no other income. I'm sure not every single $100k+, non-stupid person baddrafter refers to has a spouse to split with, who already has no other income.

[gheart008]

Taxes are tiered. An example is below (And it does NOT use the proper tax percentages)

Say you'll be taxed, 30% for $1 -> $50,000 and 60% for $50,001 -> $100,000.

If you earn $50,000 you'll pay $15,000 in taxes (50,000 * 0.30).
If you earn $51,000 you'll pay $15,600 in taxes (50,000 * 0.30 + 1,000 * 0.60)


As you can see, it's a tiered system. Everything over $50,000 is taxed at a different rate, but it doesn't change that everything under $50,000 is taxed at 30%.

And just to add (and to answer the OP's question), no it is NOT better to make $50K compared to $51K. From these calculations, you can see that:

If you earn $50,000, you'll bring home $35,000.
If you earn $51,000, you'll bring home $35,400.

This fact will be true no matter what percentages you plug in as tax since it's a tiered system and not a direct percentage of the whole amount.

[dablackgoku1234]

http://www.ey.com/GLOBAL/content.ns...05_Personal_Tax

What is the diff between marginal tax rate and average tax rate?

[sparkplug]

You only save CPP if you take straight dividends, and it's not always beneficial to do so (the millionaire I do the books for take a salary, as does his wife, and believe me, he's consulted tax accountants on it).

Salaries get a bit sketchy for spouses. They need to hold a position in the company and their salary must be in line with what's reasonable. Dividends don't have that problem.

The advantage of salary is you can continue to contribute to your RRSP to earn tax free capital gains. The tax savings are not immediate like taking dividend income, but after many years it can surpass it.

Whether you take salary or dividends does depend on your income level. I don't have specifics, but there should be differences in how you deal with a $100k income and a $300k income.

[Bullseye]

What is the diff between marginal tax rate and average tax rate?

Average is exactly that, your average rate overall. If you paid $20K on $60K of income, your average rate is 33%.

Marginal is the rate applied to the next dollar of income. Using the above example, if you earned an extra thousand dollars, the rate of tax would not be 33%, it would be taxed at a higher rate. It's a useful number for calculating the benefit of RRSP contributions, or deciding whether to take a part time job, for example.

[commie]

Other than that I don't know anybody who makes more than $100,000 that is stupid enough to not declare themselves an incorporated business. Business taxes are far less than personal taxes and you can actually get your tax burden down to reasonable levels by using various tricks.

huh?

Making 100K right now is nothing special...plenty of people working with a few years under their belt are at that level..

Explain to me how someone can declare themselves an 'incorporated business' when they are working for some company?
How can a banker working for CIBC declare themselves an corporation?
Or a mid-level software engineer working at Microsoft declare themselves an corporation?
Or all those middle managers working for the city like Toronto Hydro....how can they declare themselves an corporation?

Or are they all 'Stupid' that they haven't figured a way to do it?

Please enlighten and smarten us up.

[BadDrafter]

Yes, a business gets more deductions, but these are for legitimate business expenses only, anything else would be entering into tax cheating territory. I assume these are the 'tricks' you refer to? You mean breaking the law?

Nobody in the world of engineering in their right mind would set themselves up as an employee if they could take advantage of being contractor. There are no advantages to being a staff engineer, even with health benefits if you are making that much. At least not in Calgary, I'm not sure how people operate out east, maybe they like hands in their pockets.

What's in your wallet?

[BadDrafter]

huh?

Making 100K right now is nothing special...plenty of people working with a few years under their belt are at that level..

Explain to me how someone can declare themselves an 'incorporated business' when they are working for some company?
How can a banker working for CIBC declare themselves an corporation?
Or a mid-level software engineer working at Microsoft declare themselves an corporation?
Or all those middle managers working for the city like Toronto Hydro....how can they declare themselves an corporation?

Or are they all 'Stupid' that they haven't figured a way to do it?

Please enlighten and smarten us up.

Simple, they contract out their services under their limited company and give the employer an invoice instead of receiving a paystub. Everybody in the oil and gas industry does this when they reach a certian skill level. If they work in an industry such as banking where that is impossible/inflexible then I guess they are SOL. I am assuming that this does not go on in Ontario since it is such a foreign concept to you.

[Bullseye]

Nobody in the world of engineering in their right mind would set themselves up as an employee if they could take advantage of being contractor. There are no advantages to being a staff engineer, even with health benefits if you are making that much. At least not in Calgary, I'm not sure how people operate out east, maybe they like hands in their pockets.

What's in your wallet?

90% of the my biggest client's workforce are engineers, many over $100K, they have no choice except to be employees. They don't seem unhappy about that, especially as they are consultants, a field where lay offs are common. Self-employed people don't get generous severance packages.

Aside from that, it can be hard for many companies to make the case of contractor vs. employee, it isn't just a simple thing to switch.

Sounds like you're backpedalling now, though, from your original point that anyone earning $100K+ is 'stupid' if they are an employee.

[BadDrafter]

Sounds like you're backpedalling now, though, from your original point that anyone earning $100K+ is 'stupid' if they are an employee.

You are right, I meant foolish instead of stupid, especially if they have the chance to switch from staff to contract. Stupid is such a flame inducing word, especially on internet message boards. It would make me come off as ignorant and hostile when I hardly meant to piss people off who make 100K+ and are stuck in an environment that taxes them at the source. I set 100K as a base, as those who are contractors that I work with only start at that rate and only make that much if they only work a few months in the year and spend the rest of the year with their families.

Company loyalty is a concept that does not really exist out here. I suppose thats why people are always bouncing around from engineering firm to engineering firm, looking for the highest dollar. Severance packages mean nothing when you have no plans on staying with the company longer than when the project is complete. Even senior partners contract out their services to their own companies. I really think that there is a different culture between the oil industry and whatever industry your clients work in..

[sparkplug]

Once you reach a certain income level (such as $100k), it's to your advantage to look into better tax planning strategies. That can include quitting your salary job and utilizing your skills to become an independent contractor.

I read once the average length of employment at a company is seven years for Canadians. In a lively economy and in hot sectors and markets, the years of loyal service is even less. In these cases, it's a financial advantage to work as a contractor than as an employee. Hop from job to job every 6-18 months, increasing your hourly rate each time.

Not everyone does it because it takes guts to jump from the security of an employee position to a free agent consultant lifestyle.

[commie]

Simple, they contract out their services under their limited company and give the employer an invoice instead of receiving a paystub. Everybody in the oil and gas industry does this when they reach a certian skill level. If they work in an industry such as banking where that is impossible/inflexible then I guess they are SOL. I am assuming that this does not go on in Ontario since it is such a foreign concept to you.


Maybe its the standard in the Oil and Gas industry...but certainly people, and probably only engineers can do that working in the O&G industry represent a small percentage of the workforce in the whole Canada....

So to say 'stupid' or even 'foolish' as you have stated is incorrect. You have to qualify your statement by saying in the Oil and Gas industry...

You need to take a bigger view of things...both in terms of Canada, as there are more to Canada than just the Alberta oilsands.....and also in terms of jobs out there...as there are more career choices besides the Oil and Gas industry.

and yes...there are careers besides O&G that is just if not more attractive to get into...

Life is not all about Oil...

I know how contracting works...I have worked as an independant consultant before...and probably will again...who knows...
But I am not sure if you know that its not available for everyone...or in certain industry/situations it might not be for everyone...

Lets take an example of an contractor....even an engineer in an O&G industry..

What is the typical contract rate for one of those people? $120-140 per hour? that works out to a max. if the contractor works a full 12 months, at 40 hour week to around $250,000 a year..
Now, lets say if the engineer instead of working a contract position, joins an engineering firm..and moves up to the firm and makes Partner within say firm.
how much can this Partner of a major engineering firm make?

This same scenario is repeated in the management or IT consulting field as well...same concept.....an contractor maxes out at $120-140 an hour..meaning $250,000 a year.....while if you join a consulting firm, and become partner...you can be looking at annual salaries of $500,000+....

As a contractor, your max. salary is your 'billable hour' capacity....

[Electricute]

thnxs to all for clearing that up for me, makes more sense now

[BadDrafter]

What is the typical contract rate for one of those people? $120-140 per hour? that works out to a max. if the contractor works a full 12 months, at 40 hour week to around $250,000 a year..
Now, lets say if the engineer instead of working a contract position, joins an engineering firm..and moves up to the firm and makes Partner within say firm.
how much can this Partner of a major engineering firm make?

This same scenario is repeated in the management or IT consulting field as well...same concept.....an contractor maxes out at $120-140 an hour..meaning $250,000 a year.....while if you join a consulting firm, and become partner...you can be looking at annual salaries of $500,000+....

As a contractor, your max. salary is your 'billable hour' capacity....

I stand corrected. I eventually want to reach that level.

[sparkplug]

Actually, as a contractor once you've networked for a while I find there's often more work than you can handle. That gives you the ability to recruit people to bill out who would otherwise not have or seize the opportunity to make bigger contract dollars than their salary.

I have friends who would love to make a $60/hr rate rather than their $70k salary, but don't have the drive or aggressiveness to go out and do it themselves. The majority of Canadians, in general, do not have the drive to seize major opportunities. However, if I offer, these same people would work for me at $60/hr on jobs I bill clients at higher rates.

[charliebrown]

There's also the deductions

Even if a contractor chooses to charge a lower hourly rate/work less hours to maintain work/life balance/etc, he/she can have a much larger take home pay after considering expenses (gas, home-office exp, car lease, laptop, etc)

[commie]

I stand corrected. I eventually want to reach that level.

you were right that contracting is a good way of reducing taxes and maximizing your earnings.....given the right situation and industry.

If a person's earning potential in a company is in the range of $75K to $150K, then going the contracting route is a very viable and good option. With the potential tax savings, your income as a contractor will be much higher than as an employee..

However, if the person's potential earning power within an organization is higher than $200K, then the contracting route might not be as good option.

[commie]

Actually, as a contractor once you've networked for a while I find there's often more work than you can handle. That gives you the ability to recruit people to bill out who would otherwise not have or seize the opportunity to make bigger contract dollars than their salary.

I have friends who would love to make a $60/hr rate rather than their $70k salary, but don't have the drive or aggressiveness to go out and do it themselves. The majority of Canadians, in general, do not have the drive to seize major opportunities. However, if I offer, these same people would work for me at $60/hr on jobs I bill clients at higher rates.

then you are starting your own consulting firm...which if you have the sales and network, can be very lucative business.
or to a certain extend a 'head-hunter'.

Alot of times though, as a contractor...you are offered the position based on your specific skillset......the client might not like or want to hire the people that you hire them....

[sparkplug]

However, if the person's potential earning power within an organization is higher than $200K, then the contracting route might not be as good option.

Contract rates move up and down accordingly too. I've read articles in the newspaper about advisors to public health regions that charge $300/hr for advice or $10,000 to write a speech.

If a company is willing to pay a $200k salary for a position, they are also willing to pay a contract rate along that line. In this case, that would be $125-150/hr.

[Bullseye]

I have friends who would love to make a $60/hr rate rather than their $70k salary, but don't have the drive or aggressiveness to go out and do it themselves. The majority of Canadians, in general, do not have the drive to seize major opportunities. However, if I offer, these same people would work for me at $60/hr on jobs I bill clients at higher rates.

I think a lot of people have families depending on them, and therefore a regular paycheque and some job protections are attractive to them. It would be rather offensive to these people to say they are lacking in 'drive', I suspect.

[sparkplug]

Alot of times though, as a contractor...you are offered the position based on your specific skillset......the client might not like or want to hire the people that you hire them....

The savviest contractors can do it. Often, projects require multiple members that do similar work. To upgrade a computer system, there may be one project manager, a couple programmers/architects, a couple data processors doing grunt work and an admin.

If you're hired as a project manager, you may have the ability to bring in your own people. Quite often, companies want project managers who have a large rolodex to find people to do the job.

If you're hired as an architect and can provide services to process data, the company would probably take your guys. While they're processing data, they're learning about the system and perhaps eventually do some of your role. Once ability is demonstrated, you can excuse yourself from parts of the project to accept other work.

I also find once a company knows you, they keep calling you back. Not only that, but managers who originally hired you may go elsewhere and also call you, so you're expanding your client base without even trying. Once you've established a niche, you can work on contract for years. Having a few subcontractors working for you is a natural progression. Only the ones who seize the opportunities achieve this situation and, like I said, that's not most Canadians.

[sparkplug]

I think a lot of people have families depending on them, and therefore a regular paycheque and some job protections are attractive to them. It would be rather offensive to these people to say they are lacking in 'drive', I suspect.

That's an easy excuse to not do it. The majority of contractors I work with are indeed family people. After all, it does take some years in the workforce to acquire the skills necessary to offer your services for a premium rate. What sets these people apart is they were willing to accept the risks of leaving a comfortable job for a lucrative consulting position.

In any company, many people complain about their job and how little money they earn. Many complain indefinitely while a fraction actually puts their money where their mouth is and does something about it. Taking the next step takes drive.

[Bullseye]

That's an easy excuse to not do it. The majority of contractors I work with are indeed family people. After all, it does take some years in the workforce to acquire the skills necessary to offer your services for a premium rate. What sets these people apart is they were willing to accept the risks of leaving a comfortable job for a lucrative consulting position.

In any company, many people complain about their job and how little money they earn. Many complain indefinitely while a fraction actually puts their money where their mouth is and does something about it. Taking the next step takes drive.

I don't think any of that refutes my point. Some people simply choose to exercise their drive within a company and move up through there, maintaining some financial security.

Personally, I'm self-employed, but my situation allows for it with no trouble.

[sparkplug]

People who earn $51,000 can do this, but people who only earn $50,000 are out of luck:
http://news.yahoo.com/s/ap/20060720/ap_on_fe_st/pricey_porker

9-year-old's porker goes for a record $51G

CASPER, Wyo. - Lacey Washut's prized porker fetched a pretty penny, but the price may not pan out lest it break the bank. During an auction at the Central Wyoming Fair, C & Y Transportation bid $200 per pound for the 255-pound pig — a whopping $51,000.

But Lacey's mother, Chaynee Washut, said the company didn't realize it was bidding so much and is talking with 4-H officials about whether the price could be renegotiated.

"It's kind of sad," Chaynee Washut said. "There's rumors floating around that C & Y are refusing to pay, and that's just not the situation."

On average, a pig will sell for $4 to $6 a pound.

Lacey, 9, originally intended to bring a different pig to the fair, but that pig died of pneumonia. That's when her friends gave her a second pig, which she quickly fattened up for the fair.

Chaynee Washut said the only thing that mattered to Lacey was that she wanted to donate a portion of her sale toward the construction of a new swine barn at the fairgrounds.

"After Lacey found out she'd be getting less, she said, 'I can still donate some of my money, can't I?" Chaynee Washut said.

[commie]

T . Having a few subcontractors working for you is a natural progression. Only the ones who seize the opportunities achieve this situation and, like I said, that's not most Canadians.


you telling me the CEO of CIBC, the partners of all the CA firms....
All the V-P's at the utilities companies...all the executives of major corporations...

They all lack the drive and the guts??? They all failed to seize the opportunities?

Give me a break....

Contracting is a good option....but its not the only option.
and those that do not go contracting does not mean they lack the drive...

Works for you...great...You have drive...But doesn't mean if other people are not doing the same thing as you...that they not drive and guts...

[commie]

Contract rates move up and down accordingly too. I've read articles in the newspaper about advisors to public health regions that charge $300/hr for advice or $10,000 to write a speech.

If a company is willing to pay a $200k salary for a position, they are also willing to pay a contract rate along that line. In this case, that would be $125-150/hr.

sure...senior consultants/advisors can get those rates....you have to be THE Expert of your field..
But those are different from the normal 40 hour work weeks for 6-9 months...

Those are for short-term high-level consulting engagements.....1-3 weeks at a time or even shorter...

[sparkplug]

you telling me the CEO of CIBC, the partners of all the CA firms.... All the V-P's at the utilities companies...all the executives of major corporations...

They all lack the drive and the guts??? They all failed to seize the opportunities?

You are correct. They have drive and guts, and seized the opportunity to reach the top. However, they are few and far between and those opportunities don't exist for most people.

[Rifle]

Businesses do pay far less taxes as they can easily get many things deducted. For instance, owning your own business, you can hire on spouses or children and give them income, reducing yours to a lower tax bracket. And legit business outings and etc, as there are numerous ways to decrease your overall taxes.