Having completed several hundred dentist tax returns during this past tax season, I wish to share common tips with you which will help to reduce next year’s tax burden.

1. The ideal time for tax planning to reduce next year’s taxes is throughout the year; but especially after you have completed your most recent tax return.
2. Trying to save 2008 personal taxes is difficult to do in March/April 2009.
3. Using family members can be an effective way of reducing your overall tax bill. i.e. making your parents and/or children shareholders of your professional corporation (PC) or your technical/hygiene services corporation (T/HSC) could save you taxes. Paying individuals, including family members, a reasonable amount for services rendered is also another common tax savings tool.
4. Having your PC take a tax deduction in its current fiscal year for a bonus which will be paid to you within 179 days (about 6 months) after your PC’s year end is another way of winning the tax game.  Your PC gets a tax deduction this year although you don’t pay taxes on the bonus until 6 months later, (when you actually receive the bonus). This works for a PC with a fiscal year end of July 6 or after.
5. Given the low interest rates, consider lending your poorer spouse money at the prescribed interest rates (as outlined by the tax guys). Although you will be taxed on the interest income, your spouse will receive a tax deduction for the interest paid, provided the loan proceeds were used for business or investment purposes. This way, the business and/or investment income gets taxed in your poorer spouse’s hands. Practical applications of this concept include rental properties and stocks.
6. Consider electing to have pension income taxed in your poorer spouses hands as opposed to your hands.
7. Ensure all donations are claimed on either your tax return or your spouse’s tax return, regardless of whether the donation receipt is in your name or your spouse’s name. Consider having your PC make and claim the donation instead of you individually claiming it.
8. Consider claiming all medical expenses for your family on the poorer spouse’s tax return.
9. Consider paying dividends from your PC/HSC/TSC to your children who are attending university, provided the children are shareholders of your PC/HSC/TSC. This will enable your children to attend university with virtually tax free dividends. A child attending university on a full-time basis, for say 8 months of the year with a tuition of $10,000, and no other income, can receive $50,000 dividends virtually tax free.
10. Considering paying your poor parents to babysit your children. This will net the poorer spouse a tax deduction of up to $7,000 per child (0-6 years old) and $4,000 per child (7-16 years old). Your poor parents will pay taxes on the income at the lower tax rate. Your spouse must have employment or business income to claim the child care expenses.
11. Where one is a proprietor or in a partnership, consider structuring your affairs such that monies from your practice are withdrawn to rapidly pay off your non-tax deductible home mortgage. Appropriately structured, your practice loan will increase. The interest in the dental practice loan will be tax deductible. Hence, the end result is that non-tax deductible home/cottage mortgage interest is eliminated and tax deductible practice interest is increased.
12. Where one has a professional corporation, consider:

a. Paying the poorer spouse dividends. These dividends will be used to pay down home/cottage mortgage.
b. Implementing a tax maneuver to claim your capital gains exemption in respect of your PC shares. You are permitted to claim up to the $750,000 lifetime capital gains exemption relating to your PC shares even though you did not sell these shares to another dentist. i.e. you are still the owner of your PC.
c. An Individual Pension Planner (IPP), Retirement Compensation Arrangement (RCA); this is where your PC pays for and receives a tax deduction for contributing to your retirement plan.
d. A health spending account. This is where your PC pays for and receives a tax deduction for any medical expenses relating to its employees, including the dentist and dentist’s family.
e. Buying a universal life insurance policy. The PC could pay for the life insurance premiums, although the PC would not receive a tax deduction. Our perspective is that one should have little or no personal non-tax deductible debt (i.e. home/cottage mortgage) before embarking on this strategy.

The personal and corporate affairs are intertwined. To effectively reduce your overall taxes, one should plan in advance and on an ongoing basis taking into account one’s personal goals and family members, retirement and estate plans and addressing both personal and corporate tax issues simultaneously. An effective tax plan also requires consideration of the dentist’s personal spending.