All the profits below five hundred thousand dollars are taxed at only 11. Yes, you heard it right, one, one percent, so did you make a lot of money from day trading? Last year you did okay, great guess what you'll be getting in the beginning of the new year, a lamborghini, no a heavy taxpayer. 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 cra 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 trading 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 they'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 one hundred thousand dollars from investing, let's say you bought tesla stock.

Many years ago, pre-split and you held the position for more than three years and finally cashed out in 2021 for a handsome one hundred thousand dollars 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 made multiple trades a week, and sometimes you hold the stock position for only a few minutes or a few hours, then that same one hundred thousand dollars. Profit would be very likely to be considered as business income so that entire one hundred thousand 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 a financial advisor. I don't know anything about taxes. All i do is hold up. Meme stocks, yolo calls and bitcoin.

This video is for informational purposes only. What works for me personally here may not apply to you. Alright, 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.

So 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 power is filing for day trading profit this year.

His sole proprietorship is just under his personal name, mike backholder. 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 five. 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 1 000 square feet home and your home office for trading occupies 200 square feet. That means you can write off one-fifth of your mortgage interest, only the interest, not the principal and the maintenance fees and any home repairs. Essentially, you can deduct all the expenses you spent to generate your business income. So if you made one hundred thousand dollars in 2021 and spent twenty thousand dollars on business expenses, then that means only eighty thousand of that 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 these are tax deductions, for my personal trading income again make sure to consult with a tax professional about this if you're, indeed making a substantial income from day trading or swing trading, it's very much worth spending the three to five hundred dollars 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 five hundred thousand dollars are taxed at only eleven percent.

Yes, you heard it right one, one percent, 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 five hundred thousand dollars 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? Okay, bear with me. Let's dive into an example here, let's say my ex-husband, my bag holder. We made four hundred thousand dollars in trading last year and had fifty thousand dollars in expenses. If he was filing a sole proprietor, he would pay one hundred and forty eight thousand dollars in taxes, which is forty point.

Eight two percent tax rate his take home would only be two hundred and two thousand dollars. Oh, 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 the 50 000 in expenses. But now the corporation only needs to pay 11 tax rate, which equates to only 38 000 dollars to the cra, 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 bagholder himself needs to use the trading profit to pay the bills too. Since he owns bankholder trading limited, he can pay himself 90 000 in salary, and he would only need to pay eighteen thousand dollars in personal taxes to the cra and he gets to keep sixty seven thousand dollars in his personal bank account the rest of the money. He does not draw out a salary stays in his corporation back holder trading, limited until he chooses to draw out more next year, or maybe he just reinvests 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 broker's market data, it would be around 20 to 30 dollars 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'll have to hire corporate accountants, which could mean three to five thousand dollars each year, potentially lawyers too slack on another thousand dollars and other super annoying things like record keeping and 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 residence With inflation rising after 2020, one of the best places for traders to put their trading profit is in real estate properties.

Many are upgrading their 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. Self-Employed traders, we would 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 cra would definitely come after you. If you were 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 cra is always watching.

Everyone pay your taxes, okay, make sure to speak to a tax professional and assess your current and future financial needs and goals. All 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're still unsure whether your profits should be capital gains or business income check out this other video i 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 you.