A new financial year is a good time to make changes to your financial structures.
In particular, tax planning is an important part of managing your finances but it’s an area that doctors often get wrong, either through poor planning, or no planning at all.
Jon Collier is a senior private wealth manager at MedCapital’s New Zealand office. He says poor tax planning is common among doctors who don’t have the time or expertise to ensure they’re meeting obligations and aren’t paying too much tax.
“You need to make sure you’re meeting your tax requirements. Keeping good records and putting the right expenses through your business account,” he says.
“Online tools like Xero and MYOB make the process a lot easier on the admin side. It also pays to do things properly; it’s worth paying the money for a good accountant. I know Kiwis often prefer to take the DIY or low cost approach but considering the average doctor’s hourly rate and the potential costly mistakes, it’s usually not worth their time and effort.
“MedCapital can work with your accountant, or MedCapital members can access set pricing from our partnered accounting firm. They’re nation-wide, they’re respectable and they’re good at what they do. But whether we work with them or with your own accountant, we’re a great sounding board for all those basic questions and general business advice – we’re a good sounding board and you don’t need to worry about getting stung with an invoice every time you ask a question.”
Jon also recommends looking at your tax obligations from a broad perspective. Many people want to minimise their tax bill, but they may not realise that they’re putting some of their assets at risk simply to avoid paying a little extra tax.
“Basically, you can’t have your cake and eat it. There’s a certain lens you can look through for tax minimisation, but that’s always going to have another impact. For example, you might pay more tax for assets held via a Trust, but your assets are typically better protected. It’s about balancing out those consequences and finding out what the best structure is for you.
“Another example is Income Protection Insurance – if taken out under a company, there is potential for its premium to be tax deductible. Your options to minimise tax are limited if a policy is owned in your own name.”
Jon says there’s a few tips and tricks doctors should take on board to tidy up their tax planning. It all comes down to personal goals, what stage you are at in your career and what assets and debts you have. Whether you’re based in Australia or New Zealand, MedCapital membership gets you access to your own Personal Wealth Manager who’ll work with you and your/our accounting professionals to ensure an outcome that’s practical and will help you thrive. If you’re not already a member, sign up now for a free Personal Wealth Assessment
Top Tips for Tax Management
– Don’t DIY, do your research and find a good accounting professional (or use MedCapital’s).
– Make sure you’re keeping good records and putting expenses through your business account. Use a bookkeeping tool like Xero or MYOB to keep track. Apps like GeniusScan will help you make electronic copies of important receipts so you’re not chasing paper at the end of the financial year.
– Approach tax minimisation with a wider perspective – what might save you money in the short-term, may put your assets at risk.