Are you paying more income tax than you should?

Don't throw your hard earned cash away. Take all the deductions you've got coming

By Michael Citrome

If you think you pay too much income tax, you're probably right. Like many high-income Canadians, your tax bill is more than it should be. But don't blame the government. Yes, our home and native land has one of the highest tax rates in the West. But chances are you're selling yourself short by failing to claim all the deductions for which you are eligible.

Although a lot of people don't see it that way, being a physician means running a business. And running a business generates many legitimate expenses, most of which can be deducted from your income. So not only do you not pay income tax on the money you earned and spent on your expenses, but your overall tax rate will decrease as well, because, on paper, you will be earning less money.

Before you start feeling like a nickel-hugging tax evader, keep in mind the sage advice of Leonard Mintz, a chartered accountant in Montreal with 35 years' experience who has many physicians as tax clients.

"You should pay the right amount of tax that the government has coming to it. But don't give them more money than they're asking for. You would be better off making a charitable donation. These are legitimate business expenses that come from providing medical care, and they are deductible," says Mr Mintz.

RRSP ROAD
But before you start looking for deductions, consider your RRSP situation. Have you maxed out your RRSP contributions for the current tax year? If not, consider placing some of your surplus income into an RRSP investment.

Most people think longterm when they read RRSP, but you can derive short-term benefits as well. If you know you're going to earn less money at some point over the next few years, you can use your RRSP to defer the income. Put the money in an RRSP and you pay no tax now. Take it out when you are earning less, and you will pay a lower overall tax rate on it when you do. There are plenty of secure, short-term RRSP-friendly investments, like GICs.

If you're experiencing a particularly busy year and have rolled-over contribution room from previous years when you needed to spend more or all of your income, all the better. Use that to defer taxes now and spread your income out over future years. If your spouse has RRSP contribution room, you can transfer the money into a spousal RRSP, but be aware that it will be taxable in their hands, not yours, when you take it out.

TAX SAVERS
So what are some of the common deductions that you might overlook, but that can decrease your tax bill and put more money into your pocket? Mr Mintz has the answers.

Start small Watch out for the little routine expenses, like office supplies, postage, incidentals for your employees and anything else you might forget because you're not writing a cheque to pay for it. These expenses are hard to keep track of, and can add up quickly.

Mr Mintz recommends getting a credit card that you use strictly for these kinds of expenses. American Express and Discover Card send out an annual summary of all your transactions, so it's easy to prove those expenses to the tax man. And because they're business expenses, you can also deduct the interest you pay.

Office expenses If you work from a home office, make sure you have all the necessary documentation. You can deduct the cost of heating, taxes, maintenance, even interest on your mortgage, but only on the space used for your office. That means you need to know the percentage of your home occupied by your workspace. So get all those utility bills together, figure out your floor plan, and you can calculate exactly how much you will be saving.

Transportation When it comes to your car, Mr Mintz explains that it takes a little vigilance to maximize your deductions, but the result can be a sizeable savings on your taxes.

"The government wants you to keep a log of where you drove the car for business purposes," he explains.

The first trip of the day is considered personal, but when you drive from your office to the hospital, or to give a class, that's deductible. Same thing if you do house calls. Get in the habit of keeping a little notebook handy, or jot it down in your PDA. With today's gas prices, there's no reason to deprive yourself of a legitimate deduction.

Conferences When you attend conventions, you are probably already in the habit of writing off your transportation and lodging. But keep track of the incidentals as well — your meals are deductible at 50%, so half of what you spend on food is a write-off. "Most people don't think about it because they would eat anyway," says Mr Mintz.

This is where having a specific credit card for business expenses comes in handy. But don't despair for this year — pull out your old credit card statements, or have the credit card company send you new ones — and highlight your travel-related expenses. Whether it's driving across town or flying across the country, it is a legitimate expense to be deducted.

Dues, fees and subscriptions The fees you pay to the College and whatever other licensing bodies you belong to are deductible, as are accounting and, in some instances, legal fees. Magazine subscriptions are another overlooked deduction. Whether it is Golf Digest for your waiting room, or Scientific American at home, if it benefits your professional work, subscriptions can be written off.

Childcare costs and tuition Whether you've hired a nanny or send your kid off to daycare, the expense is deductible. If your kids are all grown up and go to university, you can transfer their deduction onto your return.

Interest Don't forget about this one. If you bought equipment with borrowed money, like on a credit card or line of credit, you probably already claimed the deduction for the initial purchase cost. But you can also deduct the interest each month. It is simply a matter of keeping track of which interest is for personal use and which is for business.

Just because it's up to you to make sure you get all the deductions you're entitled to doesn't mean you should spend the weekend poring over the tax code. The rules are notoriously complex and they change constantly, so there's really no use trying to moonlight as an expert when tax time rolls around. You're a professional — let a professional handle your taxes. But make sure you're dealing with someone you trust and who understands your financial style. If you want to milk every possible penny out of your return, make sure you've got an aggressive, diligent accountant in your corner.