Undiscovered Tax Advantages for Dental Professionals
Simply stated, if your total federal, state, and self-employment taxes exceed 30%, you are overpaying. Many dentists lose tens of thousands of dollars due to missed chances to lawfully reduce taxes. When all of these overpayments are added together, dental bookkeeping some dentists suffer “damages” over a million dollars throughout their careers.
Fortunately, tax overpayment is reversible. If you’re like the majority of dentists, you pay a significant amount of taxes each year. What you may be unaware of is that some of it may be lawfully kept. Each of the following tactics is permissible within the text and spirit of the law, legislation, and IRS rules, as long as certain procedures and treatment plans are follow.
1. Select the appropriate business structure
The primary reason dentists pay taxes they are not required to pay is because they conduct their operations under the incorrect company form. Choosing the most appropriate business entity is critical and challenging. This is why you should team up with specialist dental accountants for hassle-free tax filing.
The majority of effective practices need management by more than one body. This adds to the situation’s complexity, but the potential advantages, including tax savings, nearly always surpass the associated challenges. One advantage of corporate structures is income shifting, a tax-saving approach that involves minimizing taxable company revenue. For instance, your firm might establish two corporate entities with distinct fiscal years (e.g., S” corporation with a December 31 fiscal year and a “C” corporation with a fiscal year ending June 30).
2. Increase the value of medical benefits
Medical benefits are one of the most ignored and underestimated aspects of tax planning. By not deducting medical expenditures from pre-tax income, you risk a higher tax burden and reduce company revenues by not maximizing deductible business expenses.
Sole proprietorships have fewer alternatives than corporate entities for integrating medical benefits most efficiently into your tax strategy. Medical Expense Reimbursement Plans, for example, are accessible to firms with workers and allow you to deduct medical expenditures as company expenses. As a single owner, you are unable to form a plan.
If your firm is taxed as a corporation, you qualify as your own employee, which entitles you to medical benefits and tax savings that sole proprietors and partnerships do not get. You should be qualified as your own employee in this circumstance to optimize your medical benefits.
3. Select the appropriate retirement plan
Dentists are often unable to save enough money for retirement in the modern-day. Retirement plans are vehicles for achieving financial stability and sustaining a certain quality of living throughout one’s life. Choosing the most successful retirement strategy begins with establishing a budget. How much per year would you want to contribute? If you have staff, what is the plan’s overall budget? How much of that contribution are you, the company owner, responsible for?
With so many retirement plans available—401(k), profit sharing, defined benefit, SEP, and SIMPLE IRA, to mention a few—how do you know which one is right for you? Dental practitioners should investigate profit-sharing programs that provide them more yearly contribution flexibility. For instance, if you have no workers, a profit-sharing plan that contains a 401(k) provision permits you to contribute between zero and $56,500 in any year if you are age 50 or older. That is about as adaptable as it gets!
How can you keep your taxable income to a minimum while increasing your retirement plan contribution? With a defined benefit plan, there are no contribution restrictions of $51,000 or $56,500. Rather than that, you are restricte to supporting the monthly retirement income that you can provide for yourself after you begin receiving your retirement benefits.
4. Family members may be hired
Employing your children, an IRS-approved tax method may enable payroll tax deductions for hiring family members while also assisting your children in earning money for education or other needs. Children under the age of 21 are exempt from unemployment taxes, while children under the age of 18 are exempt from payroll taxes, Social Security, Medicare, and unemployment taxes.
Additionally, your children’s salaries are not subject to FICA or Medicare taxes. you operate as an LLC or sole proprietorship, you may take advantage of this regulation. If you pay your kid $8,000, for example, you may save up to $3,042, depending on your tax rate and other considerations. If you operate as a “S” Corporation or a “C” Corporation, employing your kid may result in tax savings, although not nearly as much. You do not have to pay unemployment taxes on earnings paid to a spouse or parent. However, FICA and Medicare taxes are levied on the earnings.
Conclusion
Tax planning for dentists begins with a proactive tax approach. Unlike dental practice accounting (which organizes what has already occurred), tax planning and dental bookkeeping enable you to take strategic measures during tax years that are still active. The laws include measures that enable dentists to manage their financial affairs to reduce their tax burden.
Consult your dental cfo CPA no later than 90 days after filing to evaluate your prior year’s return and make any necessary adjustments for the current year. Examine side enterprises, property rents, charity donations, and depreciation of corporate assets. By reviewing these critical areas, you may discover possible issues and solutions and take proactive measures to adopt tax-saving methods and capitalize on possibilities.
