One of the dentist’s largest expenses is personal and corporate income taxes. Consider the following to reduce your income tax bill:
|1.||Lend money to poorer spouse at current prescribed interest rate of 1%; provided spouse can invest the money at higher than 1%, taxes will be saved.|
|2.||Contribute to Tax Free Savings Account (TFSA).|
|3.||Pay poor family members (parents, children, nieces, nephews, etc.) who are 18 and older to babysit your children 16 and under. The poorer spouse will be eligible to receive a tax deduction for child care expenses as follows:
$7,000 – child up to 6 years old
$4,000 – child up to 16 years old
|4.||If you have a professional corporation and or technical/hygiene services corporation, and your poorer children who are 18 years old or older or your poorer parents or spouse are shareholders, then pay them a dividend. About $35,000 of dividends can be received virtually tax free provided one has no other income.|
|5.||With the stock market crash, consider selling shares to realize the loss (capital loss); wait for 31 days or longer, if you wish, to buy them back; your children 18 years or older could buy them back immediately, thereby avoiding the 31 day wait period. Capital losses can be used to offset current, past 3 years or future capital gains.|
|6.||Consider renovating your kitchen in your home. Contact a non-profit organization such as Habitat for Humanity to remove your old kitchen at no cost to you. In addition, they will issue you a donation receipt which will reduce your personal tax bill.|
|7.||Contribute to Registered Retirement Savings Plan and Registered Education Savings Plan.|
Your corporation, if you have one, should consider:
|1.||Setting up an Individual Pension Plan (IPP), which serves as a supersized RRSP; any contributions made by your corporation to the IPP will be a tax deduction to the corporation; these contributions will also provide you retirement income when you retire. Monies in your IPP are also protected from creditors.|
|2.||Making spouse and children, (especially if the children are 18 years or older) a shareholder; this will result in tax savings as it facilitates dividend sprinkling. See #4 above.|
|3.||Paying a tax free car allowance to you for any business driving done; your corporation will receive a tax deduction for the payment and you will receive the amount tax free.|
|4.||Making donations, instead of you personally, as there is an additional tax savings by doing this.|
|5.||Paying for your universal whole life insurance premiums, although the premiums paid by the corporation will not be tax deductible, it will improve cash flow. The insurance policy, however, must be owned by the corporation.|
|6.||Paying for and deducting medical expenses using a Health and Welfare Trust. This way you don’t have to use personal income which is taxed at a higher rate to pay for your personal medical expenses.|
Consider establishing a double will so that when you die, probate fees will be reduced/avoided. If your PC is worth say $1 Million, then about $15,000 in probate fees will be avoided by having a double will.
Consider claiming your $750,000 lifetime capital gains exemption in respect of your PC shares. You do not have to sell your dental practice to another dentist in order to do this. You could achieve this by selling your existing PC shares back to the PC (like a notional sale).
All dentists, whether they have a PC or not, should consider:
|1.||Paying reasonable salaries to family members for services rendered by them to the dental practice.|
|2.||Recording a bonus for services rendered and for which payment will be made in the future (up to 179 days after your dental practices year end). Hence, your dental practice will receive the tax deduction before the recipients get taxed on the actual money received.|
|3.||Recording bad debt expenses in respect of any uncollectible patient feese.|
Reducing taxes, one of the dentist’s largest expenses should be an ongoing activity much like brushing and flossing one’s teeth. Doing it only once per year can result in unnecessary pain.