Implementing some or all of the following tax planning/savings ideas before your year end could save you money:
1. Pay a reasonable salary and bonus to family members including spouse and children for services they rendered to your practice. Prepare a job description for the services they render;
2. Pay a reasonable amount for childcare services. Pay your children who are 18 years and older to babysit your children who are 16 years and younger;
3. Pay a dividend to your children who are 18 years and older, especially those attending university and are “poor”. This idea can be easily facilitated, if you have a hygiene or technical service corporation;
4. Consider updating your will and power of attorney, if you have not done so for many years or if your personal circumstances have changed, (a marriage, a divorce, a child, etc.);
5. If you have a mortgage on your home and capital in your practice, consider writing a cheque from the practice to yourself, depleting this capital balance. Use this money to reduce or eliminate your home mortgage. (Capital is defined as: all profits earned by your practice, plus money you injected into the practice, less money you withdrew from the practice);
6. Consider taking continuing education, clinical and professional development courses and seminars. These expenses will reduce your tax bill while providing valuable continuing education points;
a) A budget/forecast for your practice for next year. This will provide you with a road map/destination, and may serve to motivate you and your staff.
b) A personal budget for your own living expenses. This should be done with your spouse or partner’s input;
8. Consider buying big-ticket items for your practice (equipment, renovations, computer software.) that will increase your tax deductible expenses as your capital cost allowance (tax depreciation) increases;
9. Consider a hygiene or a technical service corporation and/or a professional corporation (PC) as a vehicle to handle your hygiene income or non-professional income, such as that of an orthodontist office which employs hygienists. A PC is used to operate what would have otherwise been your dental practice. These vehicles could result in tax savings and/or a tax deferral, since corporations are taxed at 18.62% on the first $225,000 of taxable income;
10. If you have a PC, consider establishing an Individual Pension Plan (IPP) or a Retirement Compensation Arrangement (RCA). Contributions limits for IPP’s and RCA’s are usually much higher than RRSP’s and the costs to maintain IPP’s and RCA’s are tax deductible to the PC.
Contributions made by your PC to your IPP or RCA will be tax deductible to your PC although the money is enhancing your retirement.
RCA’s are beneficial if you plan to retire in a foreign country, such as the US (sunny Florida). IPP’s could be your retirement planning vehicle, if you plan to retire in Canada.