Year end is fast approaching. Is your small business dental practice ready? Read on to learn more about tax planning insights for dental practices.
What tax deductions exist for dentists?
Business operating expenses
These are the costs of running your daily operation, such as rent, utilities, supplies, insurance, payroll, marketing, etc. You can deduct these expenses as long as they are both ordinary and necessary for your business. However, be careful to separate your business and personal transactions. Combining business and personal can pierce the corporate veil and personally expose you to business liability.
Continuing education expenses
Professionals are required to keep up with the latest developments in their industry, and tax law allows you to deduct it. You can deduct the costs of seminars, workshops, conferences and online courses that improve your skills or knowledge as a dentist. You can also deduct your associated travel and lodging for these events.
Professional dues
In addition to staying up to date, you also need to maintain your professional licenses. You are allowed to deduct the fees you pay to professional associations, state societies, and other special groups that require licensure in your state.
Using new equipment to your advantage
Depreciation is the process of expensing the cost of fixed assets over time. For example, let’s say you just bought a new x-ray machine. That machine is defined as a fixed asset with a designated useful life and MACRS depreciation schedule. The depreciation expense you are allowed to claim each year will be based on this schedule regardless of how you purchased or financed the new x-ray machine.
Accelerated depreciation
What if you don’t want to wait? Fortunately there are two forms of special depreciation that you can claim: Section 179 and Bonus Depreciation. Consult with your CPA to determine if your fixed asset qualifies for one or both, how much you can deduct, and whether it makes sense for your business.
Leasing
Another reason to consult your CPA is if you lease fixed assets. Leasing rules are complex, but the basics are that certain leases are defined as operating leases and allow you to deduct the payments, while others are defined as capital leases and are treated like a loan, with interest, principal, and depreciation.
Understanding how retirement and benefit plans fit in
Retirement plan match
Businesses that offer retirement plans need to know three things:
- Maximum contribution limit for the year
- Deadline to contribute
- Employer matching contribution calculation and remittance deadline
Understanding how much you can contribute helps save money and taxes and makes sure you don’t leave money on the table. You’d hate to find out after the deadline had passed that the limit increased and you didn’t max it out.
Knowing the employer match calculation and remittance deadline is important for cash flow. Many plans don’t require the match be contributed until the tax return deadline, allowing the small business owner to hold those funds for cash flow emergencies or invest them until the deadline.
HSAs
Did you know health savings accounts (HSAs) are called the triple tax deduction?
- Pre-tax contributions
- Tax-free investment earnings
- Tax-free withdrawals for qualified medical purposes
Many people don’t know this, or the general fact HSA money can be invested! Employer contributions on behalf of employees are also deductible.
Working with Haworth & Company, Ltd.
We’ve barely scratched the surface here, but if any of this has piqued your interest, please contact Haworth & Company to learn more about how we can help your small business dental practice. We have over 30 years of experience assisting small businesses in the Twin Cities and Rochester, MN with accounting, tax planning and preparation, payroll, and consulting. Every small business is different, and we would love to get to know yours.
