HOW CAN YOU PAY 80% LESS TAX AS A DAY-TRADER?
IS IT REALLY POSSIBLE TO REDUCE TAXES?
EMPLOYMENT VS. INCORPORATION
THE GOOD NEWS
DEDUCTING YOUR LEASED CAR
HOW DOES DEDUCTING YOUR CAR CHANGE THINGS?
DEDUCTING HOME OFFICE EXPENSES
SAVING 80% IN TAXES
WHAT IF YOU HAVE 0 NET INCOME?
So, how can you pay 80% less tax as a day trader? So recently I was talking to a day trader and he introduced me to an interesting idea that allow you to pay 80% less tax. And at first I thought, huh, that's pretty interesting. So I dig a little bit deeper and I just want to share my findings with you today at the end of the video, I'll talk about how you can use this to your advantage and invest in real estate as well. So make sure you watch till the end 96.4, if you haven't subscribed yet it is free and you can always change your mind in the future. And this month I'm looking to help 20 professionals without a financial background to master investing and target 30% a year. So they will be more details at the end of it. So how to pay 80% less tax as a day trader.
Now, before we start, I just want to establish two basic facts about day trading. First, you can not use your TSA to do day trading. And I covered this in an earlier video. So you can refer to that. Now, second, when you day trade, you are considered to get tax at the employment income rate, which can get up to around a 44 to 50% marginal tax rate in Canada. So it means you do not fall under the capital gain tax, which is 25%. And I also covered this in another video as well. So is it possible to reduce taxes and a day trader with his own corporation claims that he only pays 11% in taxes? And when I was on a call with him, I thought, wow, that is very interesting. And I believe him because I do heard of people using a corporation today trade so that they can reduce on your taxes.
So let's look at how that would pan out. So the base case is that you don't use a corporation and here is the tax calculator where you make a hundred K from day trading without a corporation, and you would pay $25,375 in taxes. And that's an average tax rate of approximately 25%. And that is pretty, pretty reasonable. And in my other video, that's what I covered. And that's what our belief is when you compare it to long-term investing. Now, here's the new situation. Let's say you set up a corporation in British Columbia or anywhere in Canada, really, you day trade within the corporation and then you pay yourself a salary. Sometime later. Now, when you're looking at a couple of companies in Canada, they generally pay a tax rates of 27%, which is pretty hefty. And this is really a combination of 15% in federal and 12% in BC provincial tax.
So together is 27%. But what if you are a private company, something called a CCPC. So here's where I introduce you to the concept of a Canadian controlled corporation. CCPC enjoys a tax benefit called small business deduction, where any income, less than half a million dollars will enjoy a lower tax rates. So how low is the tax rates? It's approximately 9% for federal and 2% for BC. That means your tax rates as a CCPC corporation, it's only 11%. And that is the critical component. When it comes to saving on taxes. Now let's do a scenario analysis on the left hand side, I have just introduced you to the first scenario where you pay 25% tax. You make a hundred K a day trading as a person. Your taxes will be 25,375. So our take home pay is 74,625 on the right hand side, you'll see the day trading corporation and the CCPC average tax rates is around 11%.
And if you earn the same 100,000 in taxable income, then your taxes will actually be 11 in the corporation. And your net income after tax is 89,000. Now you haven't paid this out to yourself yet, but let's pause at this point and look at the temporary tax savings. So at this level, your temporary tax saving is really the difference between a 25,375 minus that 11,000 in taxes as a corporation. So the tax saving is $14,375. That is quite significant, right? You can do a lot of things if you are able to delay tax by $14,000. So here is really the key observation by using a day trading corporation, you can delay the heavy, personal income tax rates by not paying out yourself immediately. Now, if you pay out yourself immediately, then of course you need to combine the amounts of taxes you paid out year as well.
And here's where it gets better. So let's say day trading is a business and it is a business you will incur expenses. And when you look at the small business deduction of half a million dollars using the lower tax rates, it is actually based on profits and not revenue. So that means you can deduct all the expenses possible. That is related to day trading. So let's say you have a car when it comes to day trading, maybe you need to drive around to investigate in businesses. So then you can understand what do you want to day trade them? Murdoch. It's a bit of a stretch, but a lot of people put their cars in their corporation. So let's say you buy a Tesla. That is where for $35,000, which is kind of the Tesla I want to buy. And I do cover this in another video call wall street buys me a Tesla, and we will assume that's you only use this car for work to do research because you drive around or you might even record some YouTube videos with your Tesla and discounts as a business expense, believe it or not.
And let's say instead of using cash to bias, you leased a Tesla. So then you're paying lease interest and you also have depreciation. And let's say the interest is 5%, which is average in this case. So that means for a $35,000 Tesla, you pay 5% interest. That is 1,750 interest expense that you can deduct within your business per year. And let's say your depreciation is 30%, which is approximately $10,500. And a 30% is really at the appreciation rates that is recommended by the CRA. So you can look up the table and look at how vehicles are depreciated over time is 30% a year. So this means the total expense that you can deduct as a business with the leased car is $12,000 for your first year. Now this number will change a little bit over time, but roughly speaking, let's use $12,000 as the assumption.
So how does that change things? So let's say you expense your car and your corporation, and now your taxable income goes down. Instead of making a hundred thousand dollars as day trader, you actually make less 88,000 because you deducted your car at this means you'll pay less tax as well. And that will be 9,680 in taxes. So after you pay 9,680 and taxes, and if you compare that to, without being incorporated, you pay 25,375 in taxes or temporary tax savings is really $15,695. So this is actually an additional tax saving of 1,320, just by expensing your car. That's pretty amazing, right? Just up till this point, I think I've already saved 15,695 as a day trader, but it gets better when you're looking at a business and you work from home. There's a concept called home office expense in Canada. And as soon as you're day trading, you can also set up at home office and you can deduct certain things like your data services, your rent, part of your mortgage interest utilities, your car lease, which we covered earlier, water books, accounting fees, and so on.
This really allows you to take part of your living expenses to be deducted under the business. And if you need to have some meals or if your company offers your employee catering services, maybe you can deduct your meal expenses as well. But this is a little bit great. So make sure you confer with your accountant. So let's make an assumption. Let's assume 50% of your day trading salary can be deducted within the corporation. And the exact detail will be different from person to person, depending on how you spend money, but let's go with $50,000 in expenses. So what this does is that you will now have a lower taxable income within a day trading corporation. And that is 5,500 in taxes. And this means you have a net income of $44,500. So before you even pay out to yourself, your temporary tax savings is now a lot higher compared to the $25,375 in taxes.
You save approximately $20,000 in taxes. And by deducting your home office expense, you save an additional $5,000 in taxes. And this is where you say 80% taxes compared to not incorporating. So if you are able to set up a day trading corporation for yourself, and by all means, this will be a great advantage for you. When you think about spending money, you know, for meals, for rent, for your house, for a car, at least you are really using your tax money to pay for a part of your living expenses as a day trader and dismissed everything in Canada, a lot cheaper because you're not using your after-tax money to pay for it. And this is a crucial observation. Now let's take it one step further. So let's say now you pay out yourself a salary for any remaining money that you did in deduct as an expense.
So that means your corporation actually has zero net income after you pay a salary of $50,000. So you pay Ciro dollars in taxes in your corporation. So what does that mean? Now on the right hand side, you'll see that your average tax rate is 20% because your income is lower and your take home pay is $39,825. On the left hand side, we have the same calculation and your take home pay is $74,625. And then you need to deduct your 50 K and living expenses. So then after that, your living expenses only $24,625, and you can immediately see the difference. That's, you're saving $15,200 by taking a nut-free 9,825 and deducted against a $24,625. Now, what if you don't want to take that out? So what if you want to leave it in the corporation and why would you want to do that? And this is really the mind blowing trick.
I discovered what I was discussing with the stage trader. And this is the last trick. And let's say you leave the $44,500 within the corporation because you don't need it because you're already deducted your card or utilities or mortgaged or meals within the corporation. So there's really not much expenses. You need to pay for it outside of the corporation anyways. So you want to reinvest that maybe into something else. And in this case, he was investing in real estate. This is really the mind blowing part for me, because now you have a down payment of 40 $400,500. And you're able to put that towards real estate is not amazing. And that's the end of this video. So when it comes to investing myself is really a long-term investor. And my targets is to make 30% a year. So even though day trading and setting up a day trading to save on taxes and treat me I'm a long-term value investor.
And when I'm targeting 30%, it's initially it feels like a stretch goal for me. But once I achieve it with a proven investing strategy, I created a quiz or a health check for you to understand where you're at, when it comes to investing. So here is the health check, the nine questions to become a successful investor. And if you are able to answer all nine questions here and you have a good answer that is all working together, then I think you're on your way. He makes 30%. So this includes your stock selection process, risk management, portfolio management, entry, exits profit multiplying mechanism, and your strategy to deal with market crash and to reduce your taxes. So if you want me to take a look at your response, then you can draft it up in detail and send it to my email address, which is [email protected].
And I'll take a look at it and maybe we'll even hop on a call if there's any improvement opportunities. And if you're interested in my investing approach and how I got 30% return or more in the last five years, and you can attend the free training on my website. So I have prepared a four hour free training for full-time professionals or retirees without a financial background. And you want to learn how to manage your own portfolio long-term and you want to get 30% return a year. So I packed a ton of value within this video. So make sure you grab a cup of coffee or two, and then take some notes along the way. So for this video, I just want to celebrate, and that a three case studies within investing celebrator, where Adrian made 78% gain in two months from Altrix animate 84% gain from Altrix in 30 days.
And he also made 65% gain from Owen in seven months. So these are a fantastic return. Congratulations to Brad and Adrian. You are doing a good job. And for investing a celebrator, I'm looking to help another 20 professionals this month without a financial background to master investing and target 30% a year. So the stretch goal is 30 people in terms of the giveaway I'm giving away the book. The one thing it is one of my favorite personal finance books. And if we reach a hundred likes for this video, then I'll be giving away one copy to the comment or the loop. So it's free just tap like and leave a interesting comment below. And I'll announce the winner in the comment section. I'll see you in the next video.