How Can I Lower My Tax Bill by Income Splitting with My Spouse?

So you want to know how can I lower my tax bill by income splitting with my spouse? Income splitting with a spouse is a very effective technique to reduce overall household tax liability. Some options within this technique involves letting the higher income spouse pay for all the house hold bills which frees the lower income spouse to make investments which will be taxed at the lower rate.

So you want to know how to lower your tax bill by income splitting with your spouse. Income splitting is a technique recommended by tax experts to lower your tax bill. This technique involves transferring income from a spouse in a higher income bracket to a spouse in a lower tax bracket.

So here’s the tip, have the spouse with the higher income pay for all household bills such as rent, food, and travel. This frees up the income of the lower income spouse to invest in stock, bonds, and mutual funds. The income earned on the investments will be taxed to the lower income spouse; thereby, cutting the family’s tax bill. Additionally, if you own an incorporated business, consider paying your lower income a director’s fee. Director’s fees are paid to directors of corporations for reviewing the company’s financial statements, attending director’s meetings and providing management advice to the business.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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