Most of us would wish to have this problem
At our recent family gathering, a member of the family stated his taxable income for his business of 2022 would be 1 million plus
He had never faced that kind of problem before about all the income tax he would pay
He was asking what everybody thought he should do, what with int rates, economy etc all having an influence on his profits
He has most debt paid off, with very little debt to pay
He could pay down debt, but the 1 million income would still be taxable as he would be paying down debt with taxable income
Would we all wish we had this problem
He can't bring himself to accept 1 million of taxable income as this has never happened before
The numbers are real as much of the projected income has already been put in the bank and operating loan paid off
The rest of the income is from solid contracts 6 months out, for stuff he sells and is already priced and his sales are contracted with a large and solid Co
Smaller sales just keep on coming with no end in sight, so his projected income looks solid
Any advice from anybody
Many suggested buying in the stk market but that could go bust with taxable income already paid, lost or a large portion lost
He will probably pay the income tax as it is taxed at corp income rates which are lower than personal income tax, "here"
He doesn't need any more toys around the house
His wife has her own high paying business
wouldn't we wish to have this problem
I doubt his problem happens two yrs in a row or even very often
His profits depend on a strong economy not only in NA but world wide
High int rates could put our economy in recession and poof
There went a lot of profitable sales
He is too smart to be a farmer like the rest of the family
He is in the manufacturing biz, not a farmer with zillions of paid for land acres
Thus a healthy economy dictates his profits
People need to work and wear out machinery, for a market for his replacement parts, for worn out parts of machinery
Plus the new machinery market needs to be robust and expanding
May not happen again for a long, long time
MIght be just a one time problem we wish we all had
I think he will pay the taxes and see what next yr brings
It's my understanding that tax rates are a bit higher than the US.
While this won't reduce his tax burden, I was going to say to gift some of the money to avoid an inheritance tax but Canada does not tax money inherited, so that won't help.
Maybe somebody that specializes in investments that shield him from the taxes. I sure don't know and it's probably too late for money he's already made.
His age matters too.
In the US they still have income averaging for farmers that have a massive spike higher in income(or losses), above previous years. I used this in the early/mid 1980s when my income jumped higher after working as the local tv-chief meteorologist, then getting a big raise in 1985. They stopped it for everybody but farmers/fisherman in 1986.
The need for Income Averaging after COVID-19
In Canada, this group is proposing Income Averaging that would save your family member tons of money............if only it was in affect. Long read but pick out what you want or read it all. I didnt read it all.
I n s t i t u t C.D. HOWE In stitute
A Question of Fairness:
Time to Reconsider
I hope its ok that this was moved to the trading forum, since its a topic more appropriate for traders/markets.
you say he is not involved in ag but the rest of the family is. If he expects this kind of income for the future he should become involved in ag. Buy some ground, have you guys farm it 50/50 and he will have plenty of expenses to deduct and you guys get to avoid high cash rent. If he enjoys it he might even later buy some equipment to deduct. If ground is too high to buy like many places here he could even rent some.
Can't say that I've ever known when taxable income was too much. It's always been too much. And I've paid in my share of taxes. It's always too much, given the generosity of some of our politicians with our money. Remember, they don't pay for the checks that they write. You do!