Doctor, you pay too much in taxes. Canada has one of the
highest income tax rates in the Western world, of course
I pay too much in taxes, you cry. Let's qualify that:
you pay more taxes than you have to. Why? Because, dollars
to donuts, you don't take advantage of all the ways there
are to save taxes that are built into the tax code. That's
not to disparage your accountant. He or she likely tries
to keep your taxes to a minimum, within reason.
LOOKING
FOR A BREAK
The truth is that there are accountants and there are
accountants. Some are more aggressive in working to
reduce their client's tax loads; others like to play
it safe. The fact is like many lawyers, accountants
tend to reflect back the attitudes they get from their
clients. If you're a play-it-safe kind of person, your
accountant will likely play it safe when it comes to
filing your tax return. Instead of suggesting ways you
can save taxes — some of which might mean making
changes in the way you handle your finances. On the
other hand, if you go into it with the idea that you
want to get every tax break you've got and are willing
to explore every tax saving avenue, you'll find he or
she will help you along the way. If not, find an accountant
who will because, like it or not, you do need an accountant.
The tax regulations aren't only staggeringly complex,
they keep changing. Without a professional in your corner
who understands how the system works and keeps up-to-date
with changes, you're like a surgeon trying to operate
using only his or her teeth.
Some doctors, though fewer and
fewer, think that reducing their tax load is somehow
immoral, that it is depriving government of the money
it needs to continue to run this fine society this country
has fashioned, one that's the envy of the world. That
may sound like taking the high moral ground but it shows
a lack of appreciation about how the economy works.
What happens to the money you save in taxes? You either
spend it on yourself and your family, invest it, or
use it to reduce your mortgage or other debts. All of
these stimulate the economy by providing income for
others (who pay taxes, incidentally; the government
waits with its hand open at the end of every transaction)
and make for a more prosperous country. In the big picture,
whether you decide how to use your money or leave that
decision to a federal or provincial bureaucrat matters
little. Money is a river fed by many tributaries and
makes little distinction where the flow is coming from.
THE
TAX DIFFERENCE
You may be one of the many physicians who believe that
there's really not much to be gained by going after
every tax break you've got coming, that it won't make
much of a difference in the long run. Think again. Just
$1,000 saved in taxes and invested at 8% compounded
once annually grows to $4,661 over 20 years. Imagine
what could happen if you invested $10,000 annually in
saved taxes for the next 20 years. Why that's almost
$550,000!
There are three principal ways
in which you can reduce your tax load: by increasing
your deductions/tax credits; by splitting income with
your spouse and children; by deferring taxes as you
do with an RRSP. Few MDs take full advantage of the
literally hundreds of opportunities available to save.
The next column will look at a few of the goodies you
may well be missing.
For more on saving taxes see
Tim Cestnick's excellent book, the tax freedom zone
Viking Canada, $35
|
