Every year, many doctors miss out on important tax savings simply because they did not know what they could claim. Two of the most common mistakes I see many doctors make is either not deducting enough business expenses on their tax returns or deducting too many expenses and thus exposing themselves to the risks of a CRA audit. Let’s talk a bit about what expenses you should claim on your taxes and what expenses you should not claim.
The biggest source of deductions for many physicians would be their automobile expenses, as well as membership fees, professional fees, and potentially some overhead costs you might pay to the clinic that you work out of.
To kick things off let’s look at automobile expenses. To determine how you can write off automobile expenses, first, we need to determine the business use of your vehicle. You can only write off your vehicle in relation to the percentage that you use it for business. Travel from home to the location of the business is not considered business use. A
Thus, it might be important for you to maintain an automobile log should be maintained to track the business use of the personal vehicle and to support the reimbursement. This log will come into play when you’re working at multiple clinics, or perhaps going from one hospital to a conference or something of that nature. This is all considered business use of your vehicle. Specific expenses that you could then include within your automobile expenses would be things like, gas, insurance, your monthly payments whether you’re leasing or financing a vehicle, maintenance costs, and parking.
Another large business expense that you can write off would be all those membership fees that you pay on an annual basis. Legal and accounting fees are also considered professional fees and thus can be written off as a cost of doing business. Other specialty dues or membership fees paid which relate to a specialty area of practice are also deductible.
These expenses include purchases of computer hardware, computer software, furniture, and equipment for the office and/or leasehold improvements that are specifically purchased for the business. These items are written off over several years depending on the nature of the item. They are not fully deductible in the year of purchase.
Another important item that can be written off is the overhead fees that you may pay to the clinic that you work out of. Insurance premiums paid for malpractice insurance, property insurance, and overhead are deductible.
Salaries or contract fees paid to family members or third parties for work related to your medical practice (e.g., secretarial, associates, nursing, assistants, bookkeeping, or billings agents) are deductible. This should relate to services that are performed with consideration of the duties and the skills required. These will generally vary depending on the nature/type of practice and degree of support provided by the clinic/hospital. The type of duties may include billing/collections, secretarial/administrative, payroll, accounting, and bookkeeping, etc.
There’s a large list of other business expenses that can also be written off. That would include things like insurance costs related to your practice, meals, and entertainment costs when wining and dining whether it’s colleagues or patients, marketing costs for the business, cell phone and internet expenses, office supplies, travel costs related to a conference you may attend, rent and salaries for the office you maintain, and potentially even some home office expenses as well, should you qualify.
That would include things like insurance costs related to your practice, meals, and entertainment costs when wining and dining whether it’s colleagues or patients, marketing costs for the business, cell phone and internet expenses, office supplies, travel costs related to a conference you may attend, rent and salaries for the office you maintain, and potentially even some home office expenses as well, should you qualify.
The costs of obtaining a license to practice under provincial laws, medical licensing exams, and related prep courses and costs to acquire an existing medical practice are deductible or treated as eligible capital expenditures (e.g., depreciated and claimed at 5% per year).
Now with all of these write-offs, it’s also important to note that there are certain items that you are specifically prohibited from deducting on your taxes such as golf. Yes, no matter how much networking you may do on the golf course or how lucrative it may be for your business, you cannot write off golf fees. Also, those shopping sprees for a new wardrobe are not deductible either.
The rule of thumb when making this determination is, if you incur an expense intending to make more money or help you do your job better, then that can be deducted as a business expense unless it’s specifically prohibited by the CRA, such as golf.
The following general criteria should be used to determine if an expenditure is deductible for business purposes:
1. The expenditure was incurred to earn income from the business, and
2. The expenditure is reasonable in amount.
Still, have questions? Our accounting firm specializes in medical practice accounting and tax services. We’re uniquely positioned to provide the accounting services, tax strategies, and practice management solutions your medical business needs to survive and thrive. Our experienced and professional team at Filing Taxes is here to set you on the right path considering your personal business situation. Feel free to reach out to Filing Taxes at 416-479-8532. Schedule an NTR engagement appointment with us and take the first step towards 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.