Personal Services Business

There is a legislation made that is specific on how personal services income must be taxed.  If you are working as a contractor or as a consultant, then your overall income tax may be affected.  The income coming from personal services is an income that is earned mostly through the personal effort of the individual that has specific sets of skills that makes them hirable for that part.  This legislation however does not apply for individuals who do not receive personal services income or if you fall under personal services business.  Personal services business has certain provisions that may apply to schemes in reducing income tax through income splitting.

about-usIf you are providing services by means of a corporation, then what you are carrying is a personal services business.  If this is the case, you basically lose tax deferral advantage that was essentially offered previously by this structure due to the tax rate increase on income coming from personal services business.  This change will affect all the taxation of everyone who falls under this tax code.  For this reason, some businesses are evaluating the impact this tax rate change will do to their business and what they may need to do with the existing corporation.

In the past, carrying personal services business intended that the loss of some deductions as well as a higher tax rate.  But since there was tax deferral advantage in having personal services business as compared when an income is earned personally, the deferral was appraised as an advantage.  However, now that there will be a new law that will be implemented, the advantage of deferral has significantly been reduced and thus makes you generally pay higher tax.

If you are having problems with this new legislation over personal services business, it may be wise for you to consult your accountant about this matter and have proper consultation over what is best for your business.  Accountants are educated and well-equipped to give advice over this matter.  Have them assist you in evaluating what is better and how this legislation can affect your overall tax rate.  It is better to be informed now than be surprised later on.  No one would really want to pay more taxes than they should.  This is why it is a logical choice to talk to your accountant and have them look out what is best for you and your income.