What is the "Breakeven investment period" in the Salary vs. Dividend Worksheet?

Jay Goodis -

In situations where paying salary is more beneficial than paying dividends, the "Breakeven investment period" calculates the number of years to earn back this difference between salary vs. dividend based on the annual after-tax Return on Investment ("ROI") from the tax deferral in the corporation.

This calculation may be important based on the cash needs of your client.

For example, let's assume that if the taxpayer paid out a salary vs. a dividend, they would have $960 of additional tax savings.  Also, if they leave funds in the corporation as opposed to paying any remuneration, they could have a tax deferral of $22,741.

If we assume a 3% after-tax ROI from investing the $22,741 tax deferral, it would take the taxpayer one year and four months to earn back the $960 shortfall on the $22,741.   

 

 

 

 

 

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