How to save on income tax and interest if you are self-employed. Many people who are self-employed have experienced challenges to secure mortgage financing through their bank. They keep their taxable income low to reduce the cost of taxes on their personal tax filing and may keep most of their money in their company. This lower tax filed income impacts their ability to borrow money. So the choice for self-employed people becomes – to save on personal income tax with a lower income or claim a higher income to qualify for a mortgage.
Some business owners may not know there are other options available to show you how to save on income tax and interest if you are self-employed. In this time of lower interest rates these alternative lending options come with very competitive rates
It is a great time for business owners to review their situation and set up a strategy with their accountant, financial planner and independent mortgage broker
In 2021 I helped many clients who are self-employed to strategize on how to save on income tax and keep their interest costs low.
Ed and Susan run a consulting firm. They pay themselves a salary. They hold money in the company to keep the tax filed income low. We had a few options as they wanted to take the maximum funds in equity out of their home. Due to the competitive market for rates we were able to choose a mortgage that exceeded their expectations. This saved them $15,000 annually in income tax, access to more money than they could have qualified for with their taxable income and no higher monthly payment than before. They were thrilled with the outcome.
Mark owns a renovation company and his partner Julie takes care of their young children. Mark also co-signed for a family member on a car loan. Therefore he is responsible for that payment even though he doesn’t pay it and must include that amount on his mortgage application. He keeps his taxable income to an amount suitable for his family and to lower taxes. These two details eliminated his opportunity to qualify for a traditional mortgage when they wanted to upgrade to a larger home. I secured them a new mortgage with 20% down payment and mortgage rate in the mid 2% range in line with existing bank rates. No change to his tax filed income and no need to remove himself for the co-signed loan payment. This kept their situation intact. We also talked about a strategy moving forward so they have options at the mortgage maturity they can consider.
Anna and Jim are contractors for custom homes. They are incorporated and hold most of their funds in their company taking less than $100K in dividends each year for their personal income. Since they have good net worth and liquid assets we were able to provide them more equity out of their new home to repay them for the funds they used to build their own custom home. They received a competitive rate and didn’t need to take more income out of the company. This plan helped them see other options for future investments and business decisions.
If you are self-employed always consult your independent and trusted mortgage broker to review all of the options available to you.
Incorporated business owners
Low tax filed income
Income through your personal and business accounts
Liquid assets and money held in your holding company
Give me a call today to review your situation and discuss options. You may be surprised to know what you can do!