Year-End Money-Saving Tax Strategies for Dental Practice Owners
There are three certainties in life: death, taxes, and needing a dentist.
Just like everyone is looking for a straighter, whiter smile, so too is society looking for ways to pay less taxes.
But if you want to navigate taxes, you must do three things: understand tax basics, understand strategy options, and work with a professional.
In this blog post, we’ll walk through the important considerations as you’re planning your year-end tax activities.
Essential Tax Concepts
Taxable Income:
Taxable income is the total amount of income that is subject to income tax. It is calculated by subtracting deductions from gross income.
Deductions:
Deductions are expenses that you can subtract from your gross income to arrive at your taxable income. Deductions reduce taxable income, not the tax itself.
Depreciation:
Depreciation is a method of spreading the cost of an asset over its useful life. This means that instead of deducting the entire cost of the asset in the year it was purchased, you deduct a portion of the cost each year.
Tax Strategies To Be Aware Of
Section 179 Deduction
During COVID, the IRS enacted a special, accelerated depreciation program to encourage businesses to invest in the economy by making large purchases in items like equipment or vehicles. This enables businesses to deduct up to 100% of the cost of the items in the first year whereas previously there was a longer depreciation schedule. For example, pre-COVID, you could deduct $1000 per year for 10 years on a $10,000 piece of equipment. Under Sec 179, though, you may be able to deduct all $10,000 in the first year. This deduction strategy would lower a $100,000 taxable income to $90,000, instead of $99,000. Assuming a 40% overall tax, this is an instantaneous $3,600 savings in tax.
For dentists, this savings can be extraordinary as the age of digital dentistry is evolving. Whether it’s a CEREC, CBCT, 3D scanner, or modern chairs, dentists are increasingly interested in new equipment and the Sec 179 deduction means that now may be the right time to invest.
This year, ending Dec 31, 2023, you may deduct 80% or 100% of the purchase. Each subsequent year, the total deduction is decreasing by 20% to phase out the COVID act, so it’s better to invest sooner than later.
Whether you are totally certain of your purchase or just thinking about it, it is very important to reach out to a tax professional because the rules of the program can be challenging to navigate and its relevance to your business needs to be individually analyzed. For example, if you think you will have more income in 2024 than in 2023, it may make sense to order the item on Jan 1, 2024 rather than Dec 31, 2023.
Corporate Structuring
There are several goals to consider for structuring: liability protection, tax minimization, anonymization, and organization are a few.
When it comes to the typical dentist’s financial life (dental practice(s), real estate, stocks/bonds/cash) there are basically two primary structures - companies and trusts – with many flavors of each (C-Corp, S-Corp, PLLC, Real Estate Trusts, Revokable and Irrevocable Trusts, etc.).
The greater the number of activities, assets, and liabilities, the more firm you should become in terms of structuring. It is best to work with a CPA or attorney to understand which options are best.
Deferring and Accelerating Revenue and Expenses
Most dental offices are probably what’s considered calendar-year entities that run on a cash basis. This essentially means that you are taxed on cash movements between Jan 1st and Dec 31st. Knowing this, you can modulate a business’s revenue and expenses based on estimated taxable income and any estimated losses.
For example, if an office will have gross profit of $100,000 in 2023 and will have $90,000 of expenses, you’d be left with $10,000 of taxable profit. You may want to prepay insurance, for example, for 2024 and bring that profit closer to $0. Alternatively, if you’re already running at an operating loss, you may want to save those expenses to next year to maintain an operating loss.
Charitable Donations
There is a saying that, “the more we give, the more we get.” There are many national and local charitable organizations that are amazing institutions to donate your time, money, and energy. From a tax perspective, you may be able to get some deductions for donating either your time or money. (Though the reward of supporting a worthwhile cause and community just might outweigh those tax benefits anyway.)
Working With Professionals
To take advantage of these strategies and more, you’ll want to have the help of an expert. Find a tax professional you can trust to help you navigate these strategies and ensure you’re making the most advantageous decisions for your practice, and your bottom line.
And consider working with GroupUps as a sales ally to ensure your getting the best pricing on the equipment you need for your practice to thrive.
When you work with GroupUps, you can get your equipment (and your service) from the same manufacturers and distributors you know and love, but with more transparent pricing and a partner in negotiation.