No one wants to pay unnecessary taxes. Keep more of your hard-earned income by planning ahead. Here are six tailored strategies for reducing your tax burden and making the most of your income in 2024:
1. Turn a loss into an advantage
Like many professionals, you may have investments that haven't performed well. Instead of holding on to them, consider selling these underperforming investments to trigger a capital loss. You can use these losses to offset any capital gains, whether they’re from the sale of your practice, equipment, or other investments. Here’s how it works:
- The sale must settle by the end of the year.
- Unused capital losses can be carried forward indefinitely, potentially offsetting gains in future years.
- Be mindful of the superficial loss rule, which could void your loss if you repurchase the same asset within 30 days.
Pro Tip: If you're planning to sell part of your practice, equipment, or investments tied to your clinic, capital loss planning can be an important tool for minimizing taxes during transitions.
2. Invest in your clinic to maximize deductions
By purchasing new equipment or renovating your office before year-end, you can take advantage of accelerated depreciation, allowing you to deduct the full cost in the current tax year.
Whether you’re upgrading to a new digital X-ray machine or renovating your waiting room, these expenses can be significant but are essential to providing top-notch patient care. The good news is they can also provide immediate tax savings.
3. Maximize your TFSA contribution
Tax-Free Savings Accounts (TFSA) offer a great way to grow your savings without worrying about taxes on the earnings. For 2024, the annual contribution limit is $7,000, and the cumulative contribution room since 2009 is now $95,000. If you’ve reached the maximum, you can gift money to your spouse or adult children, allowing them to grow their own tax-free savings.
Pro Tip: Running a practice can mean fluctuating income, so having a TFSA gives you a flexible, tax-free savings cushion for both personal and professional needs. If you're setting aside funds for future clinic upgrades or emergencies, maximizing your TFSA can help keep those savings intact.
4. Enhance your children's education savings with an RESP
As a busy professional, you may be looking for simple ways to secure your children’s future. A family Registered Education Savings Plan (RESP) helps you save for your children's education while benefiting from government grants. The Canada Education Savings Grant (CESG) provides matching contributions up to a certain amount, but only until the calendar year your child turns 17. After that, you can still contribute, but it’s best to shift future RESP contributions to younger children to maximize grant eligibility.
5. Plan ahead for your RRIF at age 71
For those approaching retirement, remember you’ll need to convert your RRSP into a Registered Retirement Income Fund (RRIF) by the end of the year you turn 71. Don’t wait until December—there’s paperwork involved, and you’ll want to ensure everything is in place, including making your final RRSP contribution. Also, consider a one-time over-contribution of up to $2,000 to your RRSP, which is allowed without incurring penalty taxes.
Pro Tip: If you’re transitioning out of your practice and looking to retire, planning for your RRIF is a critical step to ensure your savings are properly structured to provide a steady income in retirement. And if your spouse is younger, continuing to contribute to a Spousal RRSP can provide additional tax savings.
6. Donate shares to a charitable cause
If you’re considering philanthropy as part of your legacy, donating appreciated shares of publicly traded securities to a registered charity can be a tax-efficient way to make a difference. When you donate shares, you won’t have to pay capital gains tax, and you’ll still receive a charitable donation tax credit, giving you double the benefit.
Pro Tip: Many dental professionals feel a strong connection to their communities and might consider supporting charitable initiatives, whether it's dental care for underprivileged communities or other causes. Donating appreciated securities not only helps a cause you care about but also provides significant tax relief.
Final Thoughts for 2024: Take a Proactive Approach to Tax Planning
Managing a dental practice is already a full-time job and navigating complex tax rules can add stress. By staying informed and working with a financial advisor who understands your unique needs as a dental professional, you can optimize your tax strategy and focus more on what matters most—your patients and your future.
If you have any questions about setting up a Financial Plan or investment strategy contact CDSPI Advisory Services Inc. at investment@cdspi.com or 1.800.561.9401 or book a meeting.