The Problem with Taxes

Taxes are sometimes invisible.

Sure, once per year, it’s very painful and evident that the government has reached into your pocket and extracted thousands of dollars (or millions or more). But they take that money silently the other 330 days per year, or the debt accrues invisibly.

For instance, the company I own has a stock trading account in Canada (but I don’t live there), and when a dividend arrives, my transaction page resembles the following.

“DIV – AMERICAN EXPRESS COMPANY CASH DIV ON [XXX] SHS REC 10/04/24 PAY 11/08/24 NON-RES TAX WITHHELD”

That effectively means that the US government got to keep 15% of whatever divided I received. How much that adds up to per year is not easily visible to me. (After writing this, I checked my 2023 taxes to see how much foreign tax I claimed on my taxes.)

Now, I do get to deduct that foreign tax withheld from my income taxes owing to Canada. But as far as I can calculate, the government of Canada wants to keep 28% of that income for their taxes. So, my tax rate on all dividends is 28%.

Even if I invest in Canadian stocks or funds, the 28% tax will be charged even without the American withholding tax. So, I have no advantage in investing in Canadian or American stocks. The net tax rate is the same.

The withholding tax isn’t necessarily the problem. It’s the corporate tax.

I also can’t figure out a way to reduce this tax. There’s no concept of RRSPs for Canadian corporations.

I could reduce overall tax by creating more deductions. But deductions are a fancy way of saying “expenses” or “spending money.” Unless that somehow earns me more money, what’s the point of that? I don’t want to increase my expenses for no reason, just because I can reduce taxes.

And don’t even discuss “fake” deductions or trying to claim personal expenses as deductions. I’m not even going down that road.

There are some possibly legitimate expenses that would reduce my taxable income:

• Payment of salary or contractors for performing some task
  • Such as customer service, social media management, content creation, etc.
• Taking educational courses or professional development of existing staff
  • I like taking courses, so I’m drawn to this idea
• Hiring an accountant or tax advisor to think about this question
  • I do this sometimes already
• Crystalizing investment losses to offset investment gains
  • I do this sometimes already
• Purchase investment tools and services
  • Is it worth it to pay hundreds of dollars per month for a Bloomberg terminal?
• Subscribe to investment research services
  • One of my goals is to reduce trading, so that’s not it
• Develop and maintain a proper corporate website
  • Well, actually…
• Attend conferences and events, including travel
  • Similar to taking educational courses, but with travel
• Buy new equipment
  • Computers, devices, or furniture
  • Not operating expenses, but depreciation still counts

ChatGPT generated some of these ideas! Wow, great ideas.

I’ve thought about getting a proper website created before. That isn’t easy to do. I’d need a clear vision, and the person I hire is incentivized to do as little as possible to fulfill the task. I’d need someone who can take the vision and get it done completely. That’s going to cost a bit more and require more trust.