Many dentists enter into business to practice their profession which enables them to make a living while helping others. Inevitably, the business also requires a dentist to be a skilled book-balancer, manager, and a financial strategist.
If you are a dentist, you will realize that performing everything required to keep your business afloat, while earning profit from it can be overwhelming at times. To give you an easy dentistry business time, this article shares important pointers that will help you design a profitable business model.
1.Set up a PC (Personal Corporation)
A personal corporation will enable you to pay lower taxes on operations. In Ontario, the first $500,000 earned as active business income is taxable at a rate of 13.5%. If you compare that with the rate on personal income, which is 45% you will realize that it is wise to register your business as a PC. Bear in mind that personal tax is still payable if you extract funds from the PC to cater for personal expenditure. You will only pay less tax on money retained in the PC.
2.Hire family members
By hiring some members of your family you will reduce the taxes paid to CRA. When you decide to fill a position with a family member, ensure to write a precise job description and pay this member a reasonable bonus and salary for services rendered. All children over 18 years accumulate RRSP room by having some income which might enable them to get a personal exemption and pay no federal and provincial taxes. Therefore, if you hire your niece, chances are she will save you from paying a lot of taxes later.
3.Pay dividends
If you register a corporation to be the umbrella body of your business, place your children as some of the shareholders and pay dividends, especially to those who are over 18 years and are attending university. This is advantageous because CRA taxes the dividends at a lower rate as compared to regular income. An individual with an annual salary of $33,375 pays a combined federal and provincial tax at a rate of 22%. When he/she receives the same amount as dividends, the tax rate goes down up to 12%. Therefore, look for ways of paying dividends and you will reduce your tax burden by 10%.
4.Take advantage of depreciation
Don’t shy away from buying big-ticket items such as equipment, computer software, and renovations before year-end. This will enable you to increase you tax-deductible expenses since you will have an increased capital cost allowance. By doing this, you will be taking advantage of depreciation to reduce your tax burden.
5.Use accounting software
By learning how to use accounting software, you increase efficiency in bookkeeping by reducing the possibility of errors and keeping better track of profits and losses. To enable you to increase efficiency, you should ensure to get software that fits your business in terms of volume and size.
6.Hire a skilled bookkeeper
It is highly inadvisable for dentists to take a DIY approach in accounting matters. This is because with such an approach the risk of financial losses is very high. Losses may be due to avoidable mathematical errors, embezzlement by employees, and lost tax credit/deductions opportunities. With a bookkeeper, spotting and resolving discrepancies becomes quite easy. Furthermore, you will be able to smoke out any suspicious activity early, thus saving you major losses.
By utilizing the tax and accounting tips above, you will have no trouble dealing with the business side of your practice.