If you're like most of your
colleagues, you pay more taxes than you have to. Not only
are our tax rates high — despite some easing in the
last couple of years you're likely paying close to $0.50
on the dollar — the tax code is complex and subject
to change. Your accountant doubtless does his or her best
to minimize your tax load but no one knows more about
your practice and personal tax situation than you do.
The onus is on you to make sure you get all the deductions
coming and that you arrange your affairs to minimize the
burden.
December 31 has come and gone so
it's too late for some arrangements, like income splitting
with your spouse, for example, but not for others —
deducting the cost of sending your kid to camp to name
one (see below). Here's a checklist of some of the ways
you can save when you prepare your return for 2004 and
other actions you can take in 2005.
TO
SAVE 2004 TAXES
• Make sure you take your full car
allowance. If you're in private practice or in partnership
you can deduct these costs equal to the percentage of
time you use the vehicle in your practice. Professional
use 60% of the time? Make sure to take all of the deduction
you've got coming.
• In a similar
vein, make sure your accountant is up to date on the
regulations and takes all due deductions on practice
equipment.
• The regulations with
regard to incorporation of professionals have changed
for the better. Make sure your accountant is up to speed
on recent developments, there could be solid savings
here. These pages will feature an article on the new
rules early in the new year.
• Sent your
kid(s) to camp this summer? Check with your accountant,
you may well be able to take a deduction for childcare
expense. At the same time, don't overlook other kid-related
expenses. Make sure they're taken by the spouse with
the highest income.
• If you had capital
losses in 2004 they're written off against any capital
gains you had.
• The cost of safety
deposit boxes is deductible. Small thing, perhaps, but
why give half the fee to the government when you don't
have to?
TO
SAVE IN 2005
• Pay down your nondeductible debt. If you're
paying more interest on your mortgage (not deductible)
than you're earning on your RRSP, concentrate first
on reducing your mortgage. For more of the fine points,
see www.taxtips.ca.
• Split income with
your spouse. The idea is to transfer income to the lower
earning spouse, assuming, all the while, that he or
she isn't already in the top tax bracket. He or she
could, for example, work part-time for the practice
and be paid for it directly by you. Ask your accountant
about other income splitting opportunities.
• Lend money to your
spouse or children for investment purposes. This is
another perfectly legal way to minimize taxes. Any earnings
on these loans will be taxed in the hands of the spouse
or offspring. They do, however, have to pay you interest
on the loan at the going rate at the time the loan is
made. The government sets the rate quarterly. For the
first three months of 2005, it's 2.433%.
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