As a physician, managing your finances can be just as demanding as caring for your patients. The intricacies of the Canadian tax system can present challenges, especially for high-income earners like medical professionals. Filing your taxes can become overwhelming if you’re not familiar with the common pitfalls that may lead to missed deductions or unexpected tax bills. To help you avoid costly mistakes, we’ve outlined some of the most common tax filing errors that physicians should watch for in 2024.
1. Neglecting to Maximize RRSP Contributions
A Registered Retirement Savings Plan (RRSP) is one of the most effective tools for reducing your taxable income and building long-term wealth. However, many physicians either underutilize or forget to contribute to their RRSPs. By not maximizing your contributions, you could be leaving valuable tax savings on the table.
Avoid this mistake by ensuring you make full use of your RRSP contribution room before the annual deadline. Remember, your contributions are tax-deductible, and the funds can grow tax-deferred, making this a powerful strategy for reducing your tax burden.
2. Overlooking Tax-Efficient Withdrawals from Your Corporation
Physicians who are incorporated often fail to structure their withdrawals in a tax-efficient way. Simply taking a salary may not always be the best option. By combining salary with dividends or using shareholder loans, you can strategically reduce the overall tax you pay.
Avoid this mistake by working with a tax professional to plan your corporate withdrawals. They can help you determine the optimal mix of salary and dividends, minimizing your tax liability while ensuring compliance with tax regulations.
3. Missing Out on Income-Splitting Opportunities
One of the most effective ways to reduce taxes for high-income earners is through income splitting, especially if your spouse or children fall into a lower tax bracket. This strategy allows you to shift income to family members, which can significantly reduce the overall tax paid by your household. However, it’s important to ensure that the income paid to family members is for valid administrative duties that genuinely contribute to your practice. Given the Tax on Split Income (TOSI) rules introduced by the government, this area has become more regulated, aiming to prevent tax avoidance through unreasonable income splitting.
Avoid this mistake by exploring income-splitting strategies with a qualified tax advisor. For example, paying a reasonable salary to a spouse or adult children who assist with valid administrative duties, such as bookkeeping, scheduling, or office management in your practice, can help lower your taxable income, while ensuring compliance with TOSI regulations.
4. Forgetting About Tax-Free Savings Accounts (TFSA)
Many physicians focus heavily on RRSPs but forget about the benefits of a Tax-Free Savings Account (TFSA). While contributions to a TFSA aren’t tax-deductible, the investment income you earn within the account is tax-free. This makes it an excellent tool for both short-term savings and long-term growth.
Avoid this mistake by contributing to your TFSA each year to maximize your tax-free growth potential. Remember, any unused contribution room carries forward, so even if you haven’t contributed in previous years, you can still make the most of this opportunity.
5. Not Keeping Adequate Records for Expenses
Physicians often incur a wide range of deductible business expenses, from medical equipment to continuing education costs. However, not keeping thorough and organized records can lead to missed deductions or issues in the event of an audit.
Avoid this mistake by maintaining detailed and accurate records of all your business-related expenses throughout the year. Consider using accounting software or working with a bookkeeping professional to ensure nothing slips through the cracks.
6. Failing to Plan for Tax Deadlines
With a busy schedule, it’s easy to lose track of important tax deadlines, especially if you’re juggling clinical responsibilities and the complexities of running your own practice. Failing to meet deadlines for tax filings or payments can result in costly penalties and interest charges.
Avoid this mistake by setting reminders for key tax deadlines, such as RRSP contribution cutoffs, corporate tax filings, and quarterly instalment payments. Engaging with a tax professional can also help ensure you stay on top of these important dates.
7. Overlooking the Benefits of Professional Advice
Tax laws and regulations change frequently, and what worked last year may not necessarily be the best strategy in 2025. Many physicians attempt to handle their taxes on their own or with limited guidance, missing out on opportunities to reduce their tax burden or falling out of compliance with new tax regulations.
Avoid this mistake by working with a tax advisor who understands the unique needs of medical professionals. A qualified expert can help you navigate the complexities of the tax system, identify opportunities for savings, and ensure you stay compliant with both federal and provincial regulations.
Take Action This Upcoming Tax Season
Take the first step toward a stress-free tax season by booking a free 15-minute consultation with MedTax.ca today. Let our expert team guide you through the 2024 tax season with confidence, ensuring you maximize your savings and secure your financial future.
