In reality, financial planning for dentists as well as dental tax preparation has numerous moving components. Thus, a professional planner must be able to arrange every component to maximise effectiveness.
Whatever their needs may be dentists and doctors seek our help for ideas, suggestions and methods to reduce taxes and save money for retirement. The method you’ll need to be successful depends on the goals you have set for yourself.
1. The Right Entity To Choose
The right business structure can help tax planning for dentists cut down on tax costs and better prepare for the eventual sale of their practice and help build up savings to fund retirement. The structure of your business can affect everything from the way you conduct business to how you safeguard yourself against creditors.
There are five kinds of business structures within the US: Sole Proprietorship, Partnership, S-Corporation, C-Corporation as well as Limited Liability Company (LLC). However, LLCs and S Corporations are the most commonly used for dentists.
LLCs are great for protecting the Dentist from the responsibilities of business. Additionally, they allow you to choose how you would like to tax your income as you are a Sole Proprietor Partnership and Corporation.
S-Corporations can also protect the Dentist from the responsibilities of business by avoiding the double taxation issues of C-Corporations. Additionally, they can offer a limit on Self-Employment tax. But, they also add some complexity and administration burdens.
If you decide to create an entity new or undergo a restructuring it is important to weigh the pros and cons of each of the options available to you. It is important to consider the consequences for your responsibility and general management of your company.
Talk to a tax professional and a financial adviser to make sure that you’re making the most of the tax benefits that are available and avoiding tax mistakes.
2. Section 179 Deduction
The Section 179 deduction is a significant tax deduction that allows you to deduct all expenses of qualified software and equipment you buy or finance throughout the year.
It is among the most significant tax codes that small businesses can benefit from which allows them to take huge deductions to invest in new equipment and technology.
So, dental CFO who want to purchase new tools for their practices might consider tax deductions like the Section Tax Deduction 179.
If you’re thinking about purchasing equipment, 2022 might be the best year to buy it prior to the benefits currently in place expires on December 31.
The most important thing to keep in mind is that you have to get the equipment operational on or before December 31 2022 to be eligible to receive the tax deduction.
3. Participation In A Qualified Retirement Plan
One of the most effective ways to reduce taxes while saving for the future is to invest in a retirement plan.
Bookkeeping for dentists LLC have a difficult time saving enough funds for retirement. I am aware of this because a lot of dentists are either focusing on getting rid of loans or investing in their business.
We recommend taking an approach that is balanced by diversifying your wealth and maximising the benefits of your retirement plan.
There are numerous retirement plans available, but the most suitable option for dentists is generally an income-sharing plan that includes a retirement plan that includes a 401k.
You are able to contribute as much as $61,000 in 2022. in the event that you’re more than 50 years old, you could contribute another $6,500. In contrast an arranged benefit plan generally gives you a greater contribution amount.
This is also a common kind of retirement plan if your taxable earnings exceed $500,000 and you’re looking to invest your money in retirement. However, this type of plan tends to be more strict than a profit sharing plan that has a 401k benefit.
It’s easy to set up and run, it has low administrative expenses, and is flexible with annual contributions. Dentists may choose to make larger contributions in good years , and lessen the amount during bad years.
When you begin recruiting employees, using a SEP IRA is generally not the best choice for dental practices. We’ll collaborate with you and your accountant to make sure that everything is organised in the most tax-efficient way that is possible.
4. Credits for Research and Development
Technology is changing the face of medicine. Dental professionals are at the forefront of this revolution.
Dental cpa professionals, for instance, use 3D printers to design all sorts of things from aligners and crowns. The 3D technology eliminates the requirement for some Tax Planning Services for Dentists to provide lab work, which saves time and cost. As a bonus this technology also helps save taxes. This is an overall win-win.
But, the majority of dentists are unaware that the utilisation of technology and the development of new procedures could qualify them to receive tax credits such as the Research and Development Tax Credit.
In fact, CPAs as well as Tax accountants do not typically focus on R&D Tax Credits due to their complexity, they aren’t aware of this important tax benefit.
Be aware that it is a credit, not a deduction. A deduction reduces your taxable income. A tax credit reduces the tax burden dollar-for-dollar.
To be eligible dentists must demonstrate that their research costs satisfy the following four criteria:
The research has to be technological, meaning that it is based on hard sciences like computer science, engineering as well as biological sciences.
- It has to either develop new products or modify existing software or products,
- An experimentation procedure to verify the authenticity of the product and
- Set a clear goal and eliminate any uncertainty in your business.
- Are you conducting any study that meets these requirements?
If you are, you may be eligible to cut taxes by deducting eligible costs such as research costs, employees’ wages, research expenses, and the cost of supplies.
While credit is significant however, it’s important to remember the fact that there are a few researches that can be considered eligible.
Therefore, it is crucial to locate a company that specialises in R & D Tax Credits since the rules are often complex. Furthermore, these professionals can help you navigate the process, and assist in documentation of your research to ensure it is able to withstand an IRS audit.
5. Employing Family Members of the Employer
The IRS allows you to employ kids (for legitimate purposes) and any pay they earn is tax-deductible expense for your business. It’s the same as hiring other employees.
But, one benefit is that, if a child is not yet 18 years old the child is not required to pay FICA (Social Security or Medicare) tax. Furthermore, children aged under 21 do not have to pay unemployment tax.
Furthermore it is expected that the child will pay taxes on their income. But, since the standard deduction is large ($12,950 for 2022) the first $12,950 of earnings is tax-free.
In addition, employing family members can also permit them to take part in the retirement plans offered through the practice.
Please be aware it is important to note that the child of your household has to be an actual employee performing specific job duties.
Family members who work for you can provide a variety of advantages for dentists, helping to lower taxes. We’ll assist you in understanding these benefits, and we’ll collaborate with your tax accountant to help you save money on taxes and expand the size of your practice.
Get Help On Your Tax Strategies & Tax Planning For Dentists.
Dental office bookkeeping has many methods to lower their taxes while also expanding their practice. We’ve provided five tax-saving strategies in this blog post however; there are other tax savings strategies that are suitable for your particular situation.
Get in touch with a certified tax expert for advice from a professional to reap the benefits of these strategies. Remember, the sooner you start planning your tax strategy the more successful you’ll be.
Our financial advisors have been trained to work with your accountant in helping you devise a strategy to limit your tax liabilities.