As a dentist, you’ve worked hard establishing your practice, and you want to maximize your earnings, including saving on taxes.
When you receive unexpected tax bills, you may think you’ve been charged too much business taxes. That’s why you need tax tips and an expert specializing in tax planning for dental professionals.
Here are our steps to take for ethical ways to cut taxes.
Keep It in the Family
Many dentists have a dentistry professional corporation (DPC). If a family member works part-time at your practice year-round, it’s considered a “sharing of income.”
Paying your family member in dividends through your DPC means savings on taxes. If your spouse’s sole income is $30,000 in dividends, their personal tax is $1,000 or less. But they can’t claim child care benefits.
Here’s more on income sharing:
Last year, a dentist made $200,000/year with $70,000 in personal taxes
This year, they pay their spouse to work reception for $65,000/year
The dentist’s income is now $135,000 with $52,000 in personal taxes
The dentist saves $18,000 in personal taxes
There are also tax savings for optimizing salaries and dividends through your DPC.
Tax Tips on Setting up Corporate Structure
When a DPC is structured correctly, your lifetime capital gains exemption (LCGE) will benefit.
For instance, an LCGE of $892,218 won’t face regular income tax when your practice is sold for profit
It equals a saving on taxes of nearly $240,000
Some dentists fear the government will remove the LCGE. But you can still own your practice and claim the LCGE by optimizing your RRSP contributions every year.
Take Advantage of These Rules on Business Taxes
Revenue Canada has accelerated tax deductions on capital assets:
Write-off new equipment, computers, software
Install new sterilizing/autoclaving equipment
It’s an excellent time to upgrade your office and receive savings on taxes in light of the global pandemic.
If you hold staff parties or give out holiday gifts, read this to save on business taxes:
Recording staff party expenses as meals and entertainment is a 50% allowable deduction
But six (6) meals are 100% deductible if your entire staff is there
Two non-cash employee gifts are allowed per staff member ($500 total value, tax-free), and you don’t have to withhold CPP, EI, or income tax
You can look to your life outside your practice for other savings on taxes.
Ethical Ways To Cut Taxes and Save for the Future
If you’re thinking about your children’s post-secondary education, here’s a tax strategy:
Registered Education Savings Plan (RESP) contributions are tax-efficient ways to save for post-secondary education
A grant (gift) from Revenue Canada equals 20% of the first $2,500 of annual RESP contributions per child ($500 annually)
If you donate, give publicly traded shares at increased values to your favorite charity. Your charitable tax receipt will reflect the fair market value of the donated shares, and you won’t pay personal taxes on it.
Speak With Us
Our tax tips help dentists pay less tax. You earn more in your practice with our ethical ways to cut taxes.
We take pride in our proactive tax strategies. We’d be happy to meet you and discuss your practice through a free phone consultation.