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All the profits below $500,000 are taxed at only 11% .
Yes , you heard it right ?
1 1% .
So did you make a lot of money from day trading last year ?
You did ?
Ok , great .
Guess what you'll be getting in the beginning of the new year ?
A Lamborghini .
No , heavy tax .
That's right .
While a lot of traders are living the dream banking , Lamborghini money and YOLO calls , not a lot of people actually take into consideration how much they need to pay for taxes because guess what ?
The Cr a Canadian revenue Agency wants a piece of the pie too because sharing is caring , right ?
I've been a day trader for more than seven years now and I've learned so much along the way about optimizing tax deductions and saving money .
So that's why I'm making this video to help you better understand day trade in taxes in Canada and save more of your hard earned money .
I'll be covering some key topics such as business structures and tax deductibles and tax saving tips for active traders .
A lot of time research and of course , sharing from my own personal experience as a full time day trader went into this video .
So if you appreciate my efforts , please make sure to drop a like at the bottom of the video .
That'll tell me to make more videos like these in the future .
Like we mentioned earlier , there are two types of incomes that we are concerned about as active traders , capital gains and business income .
If you made $100,000 from investing , let's say you bought Tesla stock many years years ago .
Pres split and you held the position for more than three years and finally cashed out in 2021 for a handsome $100,000 profit , then that profit should be considered capital gains .
So you'd only need to pay tax on 50,000 of that income .
Essentially 50% of your profits are tax free .
However , if you were day trading Tesla stock instead , meaning you make multiple trades a week and some you hold the stock position for only a few minutes or a few hours .
Then that same $100,000 profit will be very likely to be considered as business income .
So that entire $100,000 is taxable at your full marginal tax rate .
And yes , this tax bill is definitely going to be a lot higher than you'd expect .
So we got the bad news out of the way , but don't worry , it gets so much better .
The sweet , sweet thing about filing your trading profit as business income are the tax deductions .
Basically , this means saving more money and keeping more profit in your pocket .
This brings us to the first key topic regarding day trading .
Taxes in Canada business structures and tax deductibles for day traders .
But before we go there , here's a quick mandatory disclaimer .
I am not a CPA nor financial advisor .
I don't know anything about taxes .
All I do is , hm .
Socks , yellow calls and Bitcoin .
This video is for informational purposes only what works for me personally here may not apply to you .
All right , with that aside , the two most applicable business structures for day traders are sole proprietorship , basically self-employment and incorporation .
If you just realize after watching the first part of this video that you should be reporting your profit as business income , then you will most likely be filing a sole proprietorship .
Sole proprietorship is the simplest business structure in Canada .
It's not that complicated .
You don't need a lawyer or even set up a company name .
It just means you are self employed , you own your own business of trading and you are the only employee .
For example , if my ex-husband , Mike bag holder , it's about drive .
It's about is filing for day trading profit this year .
His sole proprietorship is just under his personal name , Mike back holder .
That's it easy .
Peasy .
Lemon short squeezy for most traders in Canada , you'll be filing your day trading profit .
A self employment income and you'll pay the same personal tax rates just like all the normal people working 9 to 5 .
However , the big difference is that since you own your own business of day trading or swing trading , you now have a variety of deductions that are not available to regular 9 to 5 employees .
As traders filing a sole proprietorship , you get to write off your trading commissions platform fees , locate fees , scanner fees or even day trading education programs .
And since you most likely trade from home , just like I do , then you can write off part of your utility bills , mortgage interest , internet and the phone bills and the list just goes on and on really quick .
Here .
Let me show you how to calculate how much you can write off for home expenses .
If you live in a 1000 square feet home and your home office for trading occupies 200 square feet , that means you can write off 1/5 of your mortgage interest only the interest , not the principal and the maintenance fees and any home repairs essentially deduct all the expenses you spent to generate your business income .
So if you made $100,000 in 2021 and spent $20,000 on business expenses , then that means only 80,000 of the profit is taxable income .
I made a video on this channel going over all of my day trading expenses and the total comes out to be more than $79,000 a year .
So all of these are tax tax deductions for my personal trading income .
Again , make sure to consult with a tax professional about this .
If you are indeed making a substantial income from day trading or swing trading , it's very much worth spending the 3 to $500 to have a CPA do all the proper calculations and write offs for you .
This is even more important if you are considering the next business structure for even more tax savings and that is incorporation .
There are many benefits of why people choose to incorporate their business .
But the one benefit that applies to us traders is the small business tax rate .
And here in British Columbia where I live , all the profits below $500,000 are taxed at only 11% .
Yes , you heard it right .
1 1% .
Also , that's the grade I got for my math exam .
Essentially incorporating your trading business means you the owner becomes a separate legal entity from your business and the two entities are taxed separately .
Now , we're going to dive into all the nitty gritty details that could save you a lot of money .
These are all the lessons I've learned reporting day trading taxes over the years .
Many mistakes in the past have cost me a lot of money .
So if you're learning from this video , remember to drop a like and subscribe .
It's easy and free to do .
Unlike paying for your taxes , share this with another friend and pay it forward .
I would really appreciate it under this corporate structure .
Your trading profit under $500,000 is taxed at 11% in BC and anything above $500,000 is taxed at 26% .
And you , the owner of this business can choose to pay yourself a salary from your trading corporation and only that salary is taxed at your personal tax rate .
Ok .
Bear with me .
Let's dive into an example here .
Let's say my ex-husband , my bag holder .
It's about , it's about power .
We made $400,000 in trading last year and had $50,000 in expenses .
If he was filing a sole proprietor , he would pay $148,000 in taxes , which is 40 0.82% tax rate .
His take home would only be $202,000 .
0 my God , just thinking about this makes me want to cry .
However , if Mike had been incorporated as Bag holder Trading limited , he can still write off that 50,000 in expenses .
But now the corporation only needs to pay 11% tax rate which equates to only $38,000 to the cr A .
And the company gets to keep 311,000 in profits .
I mean , 38,000 versus 148,000 in taxes .
That's a pretty big difference .
But wait , don't forget that Mike Bag Holder himself needs to use the trade in profit to pay the bills too .
Since he owns bag holder trading limited , he can pay himself $90,000 in salary and he would only need to pay $18,000 in personal taxes to the CR A and he gets to keep $67,000 in his personal bank account .
The rest of the money , he does not draw out a salary .
Stays in his corporation B holder trading limited until he chooses to draw out more next year .
Or maybe he just reinvest that capital into his trading account .
So as you can see , this is the reason many high income traders may be interested in incorporating their trading business .
You essentially could keep more of those profits , but just in a separate entity that you fully control , the tax advantages are quite astonishing .
Now hold up before all of you watching this video , just hop on to your Lamborghinis and straight to your closest lawyer's office .
Make sure to call me first .
Just kidding .
I have to explain .
Incorporating a day trading business is not for everyone .
The biggest disadvantage is the cost .
Since you are trading now as an incorporated company , you will need to open a corporate trading account with your broker and for most brokers and platforms , that means higher monthly data fees .
Just a quick example , if a sole proprietorship day trader subscribes to an interactive brokers market data , it will be around 20 to $30 a month .
However , as a corporate trader , that means the same subscription is now going to be around 300 to $500 a month .
Big difference here .
In addition , since you're now running a corporation , you have to hire corporate accountant , which could mean 3 to $5000 each year .
Potentially lawyers too slack on another $1000 and other super annoying things like record keeping and um doing math .
So , in my opinion , once again , please talk to your own CPA and assess your own situation here .
I think it's only worth incorporating your trading business once you are consistently making six figures and you are near the top of the tax brackets .
Otherwise filing a sole proprietorship will be more than just fine and you still get the benefit of deducting all the trading expenses .
Again , I think it's only worth incorporating your trading business once you're consistently making six figures .
And another aspect many people don't consider is real estate purchasing for your own residents with inflation rising after 2020 .
1 of the best places for traders to put their trading profit is in real estate properties .
Many are upgrading their whole homes to a bigger space so they can trade and enjoy working from home .
And this is the reason I've done a substantial of day trading as my personal income .
Instead of incorporation , I've been planning to purchase a new home to live in for a few years and to qualify for low interest , conventional mortgage loans .
A self employee traders , we will need to have at least two years of consistent personal income .
Yes , it would have to be personal income that's taxed as a sole proprietor at your full marginal tax rate because you cannot use your corporate funds to purchase a home for yourself to live in .
The cr A would definitely come after your , if you are trading under a corporation and looking to purchase your own home in Vancouver or Toronto , you would probably need to take out at least $100,000 in salary from your business for a down payment .
That means your business will be taxed on a corporate tax rate and you again would have to pay the personal tax rate on that salary .
I don't know about you , but I don't want to pay any more taxes than I have to legally .
Of course , the CR A is always watching everyone pay your taxes .
Ok .
Make sure to speak to a tax professional and assess your current and future financial needs and goals .
All of these little nuances should be taken into consideration when deciding whether sole proprietorship or incorporation is right for your trading business .
If you are worried about taxes , that means you've made some money from trading .
That's a good thing if you are still on sure whether your profits should be capital gains or business income .
Check out this other video I've made previously on that topic if you enjoyed this video , please remember to drop a like and subscribe if you're interested in learning more of my day trading strategies , especially risk management .
Feel free to check out the Humble Trader Academy on my website .
Thank you guys so much for watching .
As always , I'm the humble trader and I'll see you guys next time .