If you’re the main person running the income and you have no other salary or income from other sources, here’s a guideline:
We don’t want to take you up over $120K in taxable income and that is when the marginal tax rates go from 34.5% up to 39%. It used to be $90K, but now it went up to $120K which is a lot more especially if there is a couple, or a husband and wife in the business. That’s an extra $60K they can pay themselves personally at the same tax rate. For most of us that would be a potential to distribute to ourselves.
The next one is for your spouse, keep in mind of their magic number which is $120K. You probably don’t want to take them $120k because there might be other options that have a better tax outcome below. And this also goes for your retired parents, children, siblings and grandparents. Watch for HECS debts because that might add a few percent in tax.
You also need to watch for other income. If they don’t work, earning nothing or working in the business, they can get a clean slate for you to distribute $120K. But if they are working or receiving investment income in their own name, make sure that the $120K is in total in taxable income, but not in addition to what they are already receiving. You don’t want them to be already on a $100K salary and then get an additional $120K because you might not have the tax outcome that you want.
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