Proactive Year-End Tax Tips for Dentists
Proactive Year-End Tax Tips for Dentists
We are less than a month away from year’s end. Owners of dental practices should be focusing on what they can do to save this current year and the coming year’s taxes. While some doctors and accountants prefer to wait till January in the new year to do this, you shouldn’t. You may not have enough time to improve your strategies for tax reduction. Below we explore some proactive year-end tax tips for dentists.
Have You Thought About Cost-Segregation?
If you own the building your dental office resides in or you conducted any renovation/remodel/tenant improvement, this may be one of the most significant tax deductions ever. If you didn’t carry out any of the above, you still get a normal depreciation deduction on commercial real estate distributed over a 39-year period.
It should be noted, though, that the IRS recognizes that not everything in a building lasts the 39-year period. They, therefore, classify different components/materials that depreciate fast in a 5, 7, or 15-year period. So, instead of spreading the materials out over the 39-year time frame, you can accelerate the materials depreciation. For high quality portable dental x-rays that will not depreciate easily, contact Digital Doc today.
Evaluate Business Structures
Until a practice proves its ability to generate revenue, most dental practices start as sole proprietorships for tax purposes. While some dental practices may still be filing their taxes as C-corporations, it makes more sense to file your taxes as an S-corporation. Mainly because S-corporation owners can report the firm’s revenue as personal income, so they don’t pay tax. Choosing to file your taxes as an s-corporation can be done at any time in the fiscal year.
Ever Thought of Prepaying Known Expenses?
Prepaying some of your known expenses for next year before December 31 allows you to accelerate deductions for this year. Practices are permitted to prepay rent for a 10-month period and subtract it in the current year. If you are aware that you’ll incur supply and lab bills from purchasing handheld dental x-rays in the coming year, one can convey a pre-paid tab to their vendors and deduct it for this financial year.
Additionally, Dr. Beth Herko, a family dentist in New Providence, NJ, points out that any item charged or ordered using a credit card can also be expensed in the current year. This ensures that you don’t have to pay right away, and you can make use of the tax write-off.
Review your Depreciation Deduction Options
Section 179 of the Internal Revenue Code permits businesses to take immediate deductions for business expenses that are related to assets that depreciate, such as vehicles and equipment. So, if you require any autofocus dental camera equipment in your practice that will help generate more revenue, you may write it off before the end of the year. Ask your accountant whether you have enough tax basis in your practice to write off the total asset value before you make the purchase.
You should ensure that the transilluminator equipment has been installed and is in use by December 31 if you would like to take advantage of this deduction.
Did You Know You Can Put Your Children on Payroll?
The Internal Revenue Service says that children aged six and above can be employed through one’s business. Every year, you should consult your accountant on the yearly limit kids can make without getting taxed in exchange for actual services provided, which may include cleaning an office or arranging your dental cameras. You can utilize the funds acquired in funding tuition fees or college savings accounts.
Have You Reviewed Retirement Plans and Options?
Ensure that you’ve invested in your practice properly before investing elsewhere. Investing in your dental practice not only provides you with the equivalent tax deduction of an individual who invested in any retirement plan (pre-tax) but also has a higher ROI.
Does your practice has a healthy revenue stream? You should consult on larger retirement plan strategies that go beyond the normal profit-sharing, 401k plans. Consult your accountant as well as your investment advisor.
It is important to note that you shouldn’t buy a handheld X-ray or any other dental equipment or invest in a venture simply to avoid getting taxed. You should make each decision with the growth of your practice and its financial health in mind. However, if you’d like to purchase equipment that would help generate more revenue for your dental business, contact Digital Doc.
Now that you’ve learned some year-end tax tips for dentists, you can go into 2021 feeling financially ready. Here at Digital Doc, we have various high-quality equipment that would suit your business needs. Stop wasting your money and time purchasing low-quality equipment that is unreliable. Contact Digital Doc today for a free virtual demonstration.