Could you be paying too much in taxes for your dental practice? Below are five areas where you may be overspending.
Deducting Business Expenses
Other than the typical business expenses you’re probably aware of, like meals and entertainment and mileage, there are other deductible business expenses that could save you more on taxes. These include business insurance premiums, retirement plans, employee pay, medical benefits, rent, tax preparation services, and more. The key is if the business expense is ordinary and necessary.
Entity Type
Your dental practice’s business structure can also be a source of tax savings. For example, if you’re structured as a Limited Liability Corporation (LLC) or Sole Proprietorship, you’re paying the full amount of self-employment taxes, which are about 15 percent. If your practice is an S-Corporation, on the other hand, you only pay the employer’s share of self-employment taxes, or about 7.5 percent.
There are other savings in business structure, too. You could consider more than one entity type. For example, patient and insurance receivables go through an S-Corporation, which saves money on self-employment taxes. You also avoid the double taxation characteristic of a C-Corporation. Your secondary entity, a C-Corporation, is used for management and administrative expenses. Or, you can elect to have your LLC taxed as an S-Corporation, whereby only the owner’s salary is subject to full self-employment taxes.
Income shifting can be a complicated but very effective tax savings strategy.
Employee Benefits
Offering employee benefits is a win-win: you create a more engaged, productive work environment and you can typically write off the costs. A sample of employee benefits you can deduct is below.
- Medical
- Retirement
- Fringe Benefits, including:
- Transportation costs
- Insurance (disability, life, etc)
- Dependent care
- Education reimbursement
There is added value with employee benefits, since they’re not counted as taxable income (unless your staff pays a portion of fringe benefits).
Check out these 20 U.S. companies with the best employee benefits.
Medical Benefits
Because this can be such an overlooked area of tax savings, medical benefits merits its own section.
In general, you can write off the costs of the following payments on your dental practice’s taxes:
- Group health insurance premiums
- Health savings accounts (HSAs)
- Health reimbursement arrangements (HRAs)
An HRA option for smaller dental practices that do not offer group medical insurance is a Medical Expense Reimbursement Plan (MERP). MERPs allow you to cover a portion of your staff’s medical costs, including copayments, deductibles, and qualified medical expenses. In doing so, you can write off those medical expenses. MERPs can be useful for dental practices structured as sole proprietors or LLCs with less than 50 full-time and full-time equivalent employees. Although MERPs previously did not conform to ACA standards, updated regulations permitting MERPs took effect after December 31, 2016.
Note: if your dental practice is a sole proprietorship, maximizing medical benefits will be more difficult.
Year-End Tax Planning and Projections
There are few better ways to manage your tax burden than planning ahead. If you schedule a year-end planning session with your CPA, you can look at paying certain known expenses in December or making a charitable donation before year-end, both of which result in tax deductions. You will also get an idea of your income in the next year, and plan quarterly estimated payments. This saves money because if you underpay your taxes, you’ll incur a penalty come Tax Day.
We’re here to help manage your taxes. With tax season nearly over, now is a great time to plan for the rest of 2017. Contact our office to schedule an appointment.