Doctors are among the busiest professionals you’ll ever find. Many of them lack the time and interest to start learning about the latest tax laws. In the middle of it all, they neglect a really important aspect of their professional life which is tax planning. Doctors can spend a lot of money on income taxes. They don’t know how to take advantage of deductions and credits that can help them save cash.
As a doctor, you need to understand different ways to reduce taxes and make sound financial decisions. If you are a physician or doctor working in Canada, it is important to not only know your tax obligations but also find out ways to minimize your tax bill and maximize your financial position. Below, we will highlight some strategies that you can implement in order to lower your tax bill.
Consider Taking Corporate Life Insurance Policy
Corporate life insurance policy can be taken to shelter your investments from hefty taxes. Doctors can also use the policy to create a pension income which they will use for retirement. This policy also provides a tax-free cash payout. Meaning that your family members will not have to be deducted huge taxes when they receive a payout upon or after your death. Any investments that you make inside a corporate life policy are not subjected to income tax. Once you retire, you can receive dividends from the policy if you are the primary shareholder.
Take Advantage of Meals and Entertainment Expenses
The CRA allows up to 50% deduction of meals and entertainment expenditures. This deduction can only apply to income you receive as a business or professional. For doctors, this can be applied in many ways. Common examples include:
- 1. Any meals you share with colleagues to discuss or review treatment techniques
- 2. Meals bought for your intern
- 3. Expenses incurred when entertaining partners
Claiming Vehicle Expenses
Physicians can also claim for a portion of their vehicle expenses. If you are a doctor and you often drive from work to home, you can claim some of the amount you spend on fuel, repairs, toll charges, car insurance and even depreciation of the vehicle. How much you can claim will depend on the extent in which you use the vehicle for business purposes. You will also be deducted only for the kilometers driven when travelling from one workplace to another, visiting patients or going for business meetings. Other driving activities may not be considered as being business related.
Do you Own a Company?
If you own a professional corporation with your spouse, one way to increase the income you receive as a family is to make your spouse a non-voting shareholder. This means that he/she will be receiving dividends from the corporation. This is particularly important if your wife has a lower income than you because it means that she will be in a lower tax bracket. Talk to your tax accountant regarding other income splitting strategies that you can implement to save thousands of dollars each year.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.