How to Allocate Your Income to Pay Less Tax and Build Wealth Faster

Oct 3

2 min read

When you’re self-employed or running a small business, how you allocate your income can make a huge difference in how much tax you pay — and how much money you actually get to keep.

Let’s walk through a real-life example based on a $150,000 annual business income, and I’ll show you how I’d structure things step-by-step to minimize taxes, reinvest for growth, and still live comfortably.

🏢 Step 1: Pay Corporate Taxes (~10%)

If your business is incorporated in British Columbia, the first stop is corporate tax. At a small-business tax rate of roughly 10%, you’d pay about:

📉 $15,000 in corporate tax
💼 $135,000 remaining after tax

📈 Step 2: Reinvest Into the Business

The fastest way to grow your income next year is to reinvest some of it back into the business. In this scenario, I’m setting aside:

💼 $33,333 for reinvestment (marketing, new hires, software, training, etc.)

By leaving that money in the company instead of paying it to myself, I reduce my personal taxable income to:

✂️ $101,667

✅ Tax tip: Reinvesting back into the business not only fuels growth — it also delays personal tax until you actually withdraw the money.

❤️ Step 3: Make a Charitable Donation

Next, I want to support causes I care about and get a tax break.

🎁 Donation: $1,500
📉 Estimated tax credit: ~$375

Charitable giving is one of the most straightforward ways to reduce your tax bill while doing some good.

🏡 Step 4: Claim All Deductions on your Personal Tax Return

Don’t forget to claim the deductions you’re entitled to. Even small write-offs add up. Here’s how that looks in this example:

🏠 Home office (4% of total home): $792
📶 Cell phone & internet: $660
🚗 Business use of personal vehicle: $950

✅ Total deductions: $2,402

After these deductions, your taxable income drops again:

📉 $98,890 taxable income

💰 Step 5: Estimate Take-Home Pay

At that taxable level, your after-tax income will be roughly:

💵 $74,167.50 annual take-home
🗓️ $6,180.60/month

This is the money you’ll use for your actual life — housing, groceries, travel, savings, and more.

📊 Step 6: Build a Smart Monthly Budget (50/30/20 Rule)

Here’s how I’d break down that $6,180/month using the classic 50/30/20 framework:

🏡 50% Needs (~$3,090): rent, utilities, groceries, health
🎉 30% Non-Essentials (~$1,854): dining out, entertainment, travel
📈 20% Savings & Investments (~$1,236): TFSA, emergency fund

✅ This structure keeps your finances balanced while still building wealth for the future.

✍️ Final Thoughts

This example shows how a few intentional decisions — reinvesting into the business, claiming deductions, donating strategically, and following a smart budget — can save thousands in taxes and set you up for long-term financial success.

👉 Your turn: Try this same exercise with your own salary or net business profit. How much could you save if you optimized every dollar?

And if you’re not sure where to start, that’s exactly what we help clients with at Pacific Ledger Bookkeeping — from maximizing write-offs to building smart tax strategies that fit your goals.

Pro tip: The earlier you plan, the more options you’ll have at tax time. Even small changes now can add up to big savings later.