Doctors today are busy. There is tremendous pressure being put on all aspects of Canada’s public healthcare system, and family physicians running their own practices are definitely feeling the squeeze.
Between your patients, your staff, and your own obligations outside of work, we know you have a lot to juggle. Streamlining your finances and improving how you manage your practice can take finances off your list of worries.
Using professional medical practice accountants will keep your business financials accurate and compliant. Taxation deadlines and government regulations can be challenging when operating a medical office.
No matter how well-run your business is in other areas, simply failing to manage your finances properly can be dangerous to a business’s long-term success. However, the more consistently thorough and effective your accounting process is, the more effectively you’ll be able to manage your business finances. Here are 7 tips for doctors to help keep your practice running smoothly.
1) Set Goals and Create a Budget
With today’s rate of inflation, it’s particularly important to ensure that you have clear goals about how you want to use your available resources. Setting a budget for your practice can help you avoid the urge to splurge and keep you on track to meet your longer-term objectives.
2) Use Best Practices
Although it can be tempting to mix personal and business accounts, it’s recommended that these be kept separate. This makes year-end accounting simpler, including making sure you don’t miss out on any available tax deductions. It also looks more professional to prospective investors and lets you check in on your practice’s finances throughout the year.
You’ll also want to ensure you’re taking note of equipment depreciation. Capital assets lose value over time, so the most accurate way to account for them is by deducting a portion of their value over a set period in accordance with their expected lifespan.
If your practice operates out of more than one location, tracking your finances separately at each site will allow you to compare profitability and performance easily.
3) Modernize Your Practice
If you haven’t already, it’s time to switch to paperless. This option is both less expensive and more environmentally friendly. You won’t be on the hook for paper, printer, and ink expenses and you’ll reduce your carbon footprint. Paperless office management also facilitates record-keeping and tracking.
Cloud-based accounting software is easy to use and offers a high level of security. You should also make sure you’re using an electronic medical record system that integrates with your accounting software. This will make it simple to track revenue and manage billing.
4) Keep Your Personal Finances in Order
Even though you’ll want your personal finances to be kept separate from your practice’s, it’s still important to ensure that they’re in order. Only about half of Canadians have a will. Make or update your will so that your estate will be handled according to your wishes. You’ll also avoid paying additional taxes and administration expenses upon your death.
Although pension options may be newly available to physicians, doctors have typically had to plan for their own retirement savings. Set up automatic contributions to your investments so that you don’t miss valuable tax benefits.
5) Track Your Professional Expenses
A lot of your expenses as a self-employed medical professional are tax-deductible. Keep track of your spending on things like membership dues, salaries, rental expenses, education-related expenses, insurance premiums, or anything else related to setting up and maintaining your practice. You’ll thank yourself when it comes time to file your taxes.
6) Consider Hiring a Financial Expert.
There’s a lot to consider when you’re running your own medical practice. Physicians can benefit from the services of a professional bookkeeper especially one with specific expertise in this area.
An objective professional can help you keep track of your performance throughout the year (instead of only providing a snapshot at year-end). They’ll help you identify areas for improvement and keep your books up-to-date so you’ll always maintain clear visibility on your finances.
Financial professionals also improve risk management and can offer practical advice to safeguard the financial health and longevity of your medical practice.
7) Do What You Do Best
In addition to the practical benefits of having a bookkeeper or expert accountants on your team, you’ll also free up valuable time to focus on your own areas of expertise.
Running a medical practice is time-consuming and demanding. Keep it running smoothly by making sure each individual can focus on the areas where they can contribute the most. CPAs are financial experts who not only provide accurate accounting and advice but also typically manage these tasks in a fraction of the time it might take someone without extensive knowledge. This means you’ll have more time available for your patients, your staff, or even for leisure.
If you’re a busy family physician, following these recommendations and seeking the advice of a professional accountant can give you the peace of mind of knowing your financial accounts are in order so that you can focus on doing what you love: being a doctor.
What Tax Returns Should a Doctor File in Canada?
For doctors in Canada, the primary tax return is the T1 General Return. Still, several additional forms may be necessary depending on the structure and specifics of your practice. These other forms can include:
- Form T2125 (Statement of Business or Professional Activities):This form is essential for doctors operating as sole proprietors or in a partnership. It details the income and expenses related to their medical practice. The form helps calculate the net professional income and is reported on the T1 General Return.
- T4 Slips (Statement of Remuneration Paid):If a doctor employs staff, they must issue T4 slips. These slips report the salaries, wages, and other compensation paid to employees, along with the deductions made for income tax, Canada Pension Plan (CPP), and Employment Insurance (EI).
- GST/HST Returns:Doctors who provide taxable supplies and who choose to be registered or are required to be registered for GST/HST must file GST/HST returns. It is particularly relevant if their services are only partially exempt from GST/HST. They need to report the GST/HST collected from patients and can claim credits for the GST/HST paid on business purchases.
- Form T5013 (Statement of Partnership Income):For doctors in a partnership, Form T5013 is necessary. It outlines each partner's share of the income or loss from the partnership.
- Corporate Tax Return (T2):If the doctor's practice is incorporated a separate corporate tax return (T2) must be filed. This return deals with the income, expenses, tax credits, and taxes payable by the corporation.
These forms are used to detail and report a doctor's business operations, employment responsibilities, and excise tax requirements (if any). Filing these forms is crucial for tax compliance and effective financial management.
How Should Doctors Calculate Their Annual Receipts?
Physicians should calculate their annual receipts by tracking all sources of income. This should include earnings from patient care consultancy fees, resident training, and any other sources of income related to their practice.
Accurate calculation of annual receipts is vital for adequate tax preparation and financial planning. Utilizing software tools like QuickBooks, FreshBooks, or Xero can significantly streamline this process. However, for more simple medical practices an export of your online banking may suffice. The key is finding a tool that works for you to help organize and categorize your income and expenses.
Additional Tax Tips for Doctors
Adequate tax preparation for doctors involves staying organized, tracking deductible expenses, and understanding changing tax laws to optimize returns and reduce liabilities.
Have a Good Expense Record
Maintaining expense records is non-negotiable. Doing so will assist with successful tax planning for doctors. Good record-keeping simplifies tax filing and supports claims for deductions.
Track Your Income
Regular income tracking helps you understand your financial flow and prepare accurate tax returns. This practice helps in identifying trends and making informed financial decisions.
Consider a Tax-Free Savings Account (TFSA)
A TFSA can be a smart way to save money without increasing your taxable income. The flexibility and tax advantages of a TFSA make it an attractive option for doctors looking to save for the future.
Open a Registered Retirement Savings Plan (RRSP)
RRSP contributions are deductible from your taxable income and are a wise choice for long-term financial planning. These accounts not only provide retirement savings but also immediate tax relief.
Use a Competent Accountant
A skilled accountant who understands the specific needs of physicians can be invaluable in navigating the complex tax landscape. They can provide tailored advice, ensuring your tax planning is efficient and compliant.
Why Specialized Accounting Matters?
Healthcare professionals often face unique financial challenges and opportunities. From managing revenue cycles to navigating complex tax regulations, it can be a daunting task to keep your financial house in order.
Below are some reasons why specialized accounting is essential:
- Compliance and Regulations: The healthcare industry is highly regulated. An accounting firm well-versed in healthcare can ensure your practice complies with all the latest regulations, including the Health Insurance Portability and Accountability Act (HIPAA) and billing requirements in Ontario.
- Tax Efficiency: Healthcare professionals have specific tax deductions and benefits. Accounting experts can help you take full advantage of these, reducing your tax liability.
- Financial Planning: Your financial well-being goes beyond simple bookkeeping. Our accountants can help you with long-term financial planning, ensuring a secure future for your practice.
Best Practices in Healthcare Accounting
- Proactive Tax Planning: Effective tax planning can save your practice substantial money. An experienced tax and accounting firm can help take maximum advantage of tax deductions, credits, and other incentives that may be available to healthcare professionals.
- Detailed Record-Keeping: Accurate record-keeping is essential. Your accountant will ensure all financial transactions are properly recorded and organized.
- Revenue Cycle Management: Efficient management of your revenue cycle is critical. Accounting professionals can help streamline billing, payments, and collections to improve cash flow.
- Compliance Assurance: Staying compliant with healthcare regulations in Canada is a must. A professional healthcare accountant will keep your practice on the right side of the law.
- Financial Analysis: Regular financial analysis can uncover areas for improvement. Your accounting firm near me can provide insights into your financial performance and suggest strategies for growth.
Are You a Doctor in Need of Help with Tax Planning?
Effective tax planning for doctors is essential in Canada, providing a pathway to financial stability and success in their profession. By staying informed and proactive in tax planning, doctors can maximize their financial potential while remaining compliant with the ever-evolving tax laws.
Tax planning for doctors should be made easy and it can be. If your practice needs assistance with tax services this year, don't hesitate to contact Filing Taxes by filling out our contact form. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step toward proper management of your finances.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Rundhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.