Minimizing Your Taxes: 3 Things To Consider
It’s not the most exciting subject in the world, but tax mitigation strategies can save you a lot of money. And whether you’ve completed residency or are about to, it’s good to know whats in store.
Here are three things you’re going to want to be aware of as you plan with your financial advisor.
Give Yourself Some Space
If you’re just finishing your residency, you’ll find that the first tax year as a practising physician won’t be nearly as expensive as the second. I recommend taking this time to pay down student debt, get a mortgage if you’re looking to buy a house, and/or live the highlife for a while (if that’s your thing). Specifically with respect to buying a house, you might want to postpone incorporation until you’ve done this. Buying a house requires a good amount of cash-on-hand while incorporating means more of your income stays in the company (i.e. your practise).
If you are coming up on this scenario, it might be a good time to pull your financial advisor into the conversation. Don’t have one? We’d be happy to help.
But Still Have a Plan
Most doctors only realize in their second full year just how big their tax bills are. And the fact is, it’s a lot. Since you’ll be in the top income bracket, every second dollar goes to the government. Because of this, I recommend taking a look at incorporating around this time.
This is also the time I like to formalize a student loan repayment plan with my clients. Since life has settled down a bit, it’s good to land on a consistent number that you’d like to put towards paying off your loans in a timespan of say 10 years.
Know What Registered Accounts
Can (And Can’t) Do
Your registered accounts (like TFSAs, RESPs, and RRSPS) are very useful, but they a have a limit. Literally. For example, RRSPs are limited to $27,000 annually or a max of 18% of income from the previous year. For most doctors, that is not enough of a shelter. Which is why, again, it makes sense to leave some portion of your income in your corporation instead of taking it all out as a salary and waving goodbye to half of it.
You’ll likely want to max out the contribution you’ll be making to each of your registered accounts from day 1, with your RESP being somewhat dependant on how many kids you’re wanting to have. For the details on what exactly each account does, it would be helpful to have a conversation with your financial advisor.
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