Medical Doctor Insights on Tax Bracket Planning

A common misconception is that when you earn an extra dollar and move into a higher tax bracket, all your income gets taxed at that higher rate. In reality, only the additional dollar and any subsequent earnings are taxed at the higher rate, while the income below the threshold remains unaffected. In 2014, there were two notable amendments in the tax law that could influence prior planning considerations for medical professionals, particularly in terms of planning for the present or upcoming year’s tax obligations:
- The peak tax rates for high-income individuals in Ontario saw an increase. For more details, you can refer to a recent article discussing the 2014 tax bracket rate hikes for Ontario residents.
- The tax rates on dividends procured from a corporation rose by approximately 3%. To illustrate, in 2014, the tax on a dividend of $100,000 would surge by roughly $3,000.
When making tax-aware decisions about planning strategies for medical professionals, it’s crucial to evaluate your present and anticipated tax bracket. Here are some additional factors to consider in relation to your tax bracket:
- Low Current Year Marginal Tax Rate: If you foresee being taxed at a steeper marginal rate in the future, you might want to expedite income inclusions and postpone deductions. Nevertheless, it’s essential to factor in the time value of money. If you find yourself in this scenario, you might opt not to fully deduct your RRSP contribution. You could also think about liquidating appreciated assets or postponing the acquisition of expenses to leverage a low current marginal tax rate.
- High Current Year Marginal Tax Rate: Those in the topmost income tax bracket should explore methods to delay income or amplify deductions. If this describes your situation, you might contemplate deferring business revenue through a medical professional corporation, mull over income distribution tactics with family, expedite business expenditures, or make donations (especially appreciated stocks or securities).