How this Business Owner pays ZERO TAX on profits in his company
Usually there is 12.5% tax payable on profits in your company.
See how this business owner pays 0% tax in their company.
Larry, age 51, and his wife Mary, age 49, own a company and they each take a salary from the company.
Their company year end is 31st December and each December for the last 5 years, I have met with them to discuss profits and tax for the year.
Their company profits have been more or less consistent for each of the last 5 years @ €100,000 per year.
So instead of paying company tax on these profits, each December for the last 5 years they have transferred €50,000 into each of their pensions, total €100,000 per year into pensions.
By doing this the company profit has been zero each year and therefore they have avoided paying €12,500 company tax each year.
This has saved €62,500 in tax over 5 years and so during this time they have contributed €500,000 into their pensions.
The €500,000 invested in their pensions is currently valued at €770,000 due to the investment growth of their pensions over the last 5 years. This investment growth of €270,000 does not attract tax as it is in a pension.
Overall, then, they have saved €62,500 in company tax plus they have gained €270,000 in investment growth and now they have €770,000 in their pensions.
If they had left this €500,000 in their company bank account, after paying company tax of €62,500, they would now have approx. €437,500 in the company, which may also now be subject to a negative interest rate from the bank.
So, they have €770,000 in their pensions now versus having €437,500 in their company.
When I met with Larry and Mary last week, we were all celebrating this achievement and how they have converted €500,000 of company profits into €770,000 of personal wealth in such a tax efficient manner. They were especially happy that this money is not exposed to any risks in their company and that it is available to provide them with an income in the future.
“Zurich Prisma 5 fund performance from 15/11/2016 – 15/11/2021”
Warnings:
These examples are for illustration purposes only
Past performance is not a reliable guide to future performance
The value of your investment may go down as well as up
There is no guarantee that the accumulated retirement fund will provide any specific level of retirement income
If you require more information, you can contact me on 01 5267770 or email jdoyle@guardianwealth.ie
Jim has been providing tax, pension/investment and lifetime financial planning advice to clients for over 30 years. He has an in-depth understanding of Business Owners and their requirements, which allows him to guide his clients through the complex world of long-term financial planning.
