5 Ways for Doctors to Slash Tax. Is your accountant across your tax minimisation along with income and work-related deductions? Find out. 4-min read.
If the title ‘5 Ways for Doctors to Slash Tax’ caught your attention, you’re likely to be a high-income medical professional. And like most doctors, dentists, or specialists, June 30 is when you look up from what you do best and turn your attention to your end of year tax.
Five ways to take a scalpel to your taxes.
Throughout the year, money flows into the practice coffers. But at the end of the financial year, a sizable chunk can flow out again if measures to minimise tax are not in place.
At Carbon Medical, new clients often come to us when this dynamic has caught them out. That is, spending decisions based on projected gross earnings lead to a financial over-commitment and insufficient cash-flow to pay the BAS (business activity statement) and end of year taxes.
Consequently, we work with our medical professional clients to think outside the square when it comes minimising their tax by maximising all tax-friendly options.
Here are five ways you can take a scalpel to your taxes.
Superannuation is still the most tax-effective means for medical professionals. Regardless of your employment arrangements, contributing money into superannuation pre-tax reduces your tax liability. Otherwise known as salary sacrificing all doctors should make pre-tax contributions to reduce their tax rate.
Another option is to purchase a property using your super as a deposit, thus allowing you to buy a property inside your super fund. Then by salary sacrificing into super (attracting a lower tax rate), you can use that money to repay the loan used to buy the property. And if you run a practice or rooms, you can transfer the ownership of that property into your superfund without paying stamp duty with minimal capital gains tax.
For medical professionals with rooms and employees, trusts can reduce taxes. These business structures allow for appropriate income distribution to family members on much lower tax margin rates. However, the ATO has strict guidelines. There is a thin line between tax minimisation and tax avoidance. Make sure your accountant knows the difference.
Professionals can come unstuck when seeking investments offering short-term tax advantages at the expense of long-term investments. While negative gearing makes sense in terms of tax effectiveness in some scenarios, you need capital growth to make it pay off. So, our advice is to look at all asset options for minimising tax before moving into negative gearing.
Income splitting redirects high income to a spouse or dependent who has a lower income. As a result, marginal tax rates reduce to typically 47 per cent. However, the ATO has stringent guidelines. Namely, you can’t split income you earn from personal exertion. But if you own a practice that employs staff, greater opportunities exist through the use of a service entity.
As a medical professional, you incur work-related expenses while earning your assessable income. Below are some of the tax deductions you can claim. (See the ATO’s definitive list for yourself, or talk to us.)
Ask your accountant if these tax minimisation strategies are in play for you. Otherwise, talk to us at Carbon Medical. We help doctors, specialists, and other medical professionals run a smarter practice while growing your net worth.
For July only we’re offering a bonus 1-hour Carbon Medical Wealth Health Check. We understand how hard it is to find a non-partisan medical accounting expert with whom you can discuss your business ideas and concerns in confidence. But bonus appointment numbers are limited, so book now. Email us today, message via LinkedIn, or call (08)9446 8588.
We’re looking forward to talking with you soon.