Forgotten Tax Deductions

It’s estimated that most dental practices overpay their taxes. We don’t want yours to be one of them!

There are several deductions where your dental practice could be saving money on taxes, even on everyday expenses. Two words to keep in mind when claiming dental tax deductions: ordinary and necessary. Both conditions must apply for the expense to be tax deductible.

Read below for eight dental tax deductions to keep more money in your practice. 

Some tax deductions you’re probably already aware of, like premiums for malpractice insurance or the 50 percent deduction for meals and entertainment.

 Talk to your tax advisor to see what applies in your situation.

Supplies

Everything from toothbrushes to cotton balls to dental eyewear can and should be tracked – and deducted. This includes office stationery and administrative supplies.

Lab Fees

Lab fees can be 10 percent or more of your practice’s budget, so make them count on your taxes. Think x-rays, crowns, partials, molds, and dentures. Keep track of these fees for tax savings.

Continuing Education

Even if you don’t consider yourself a lifelong learner, your office’s yearly subscription to a dental industry magazine could be tax deductible. So could your costs and fees associated with exams, licensing, conferences, and certifications. Go ahead and pursue that specialty!

Vehicles

There are three ways to deduct vehicle expenses: 1) buy the vehicle through your dental practice (if your business structure is a corporation), and include personal vehicle expenses as income on your individual tax return 2) track mileage expenses or 3) track actual expenses.

Number one is complicated and merits a call to your tax advisor. The current mileage rate is 53.5 cents per mile for 2017 (54 cents per mile for 2016). Or, to track actual expenses, keep a log of oil changes, repairs and maintenance, gas, and so on. Note that ordinary trips to and from your office don’t apply for standard mileage rates, but trips to other offices or business meetings do.

Utilities

Keep a record of your dental practice’s water, electric, gas, phone, internet, rent and/or mortgage payments.

Employee salaries, healthcare, and retirement accounts

You probably already know you can deduct the employer’s contributions to retirement and healthcare accounts. But you might not be aware of the recent change allowing employer-funded health savings accounts, or that your spouse can earn a salary that can also save money on taxes (there are many ways to do this; call our office for more information).

Read our blog post on Tax Savings for Dentists for more information.

Advertising and marketing

The cost of promoting your dental practice is tax deductible. So take out that ad in the local business journal, and send those mailers. Then include the fees on your taxes.

Legal and Tax Fees

Finally, you can deduct the cost of your attorney and tax professional. We can show you how – contact us today!

End of the Year Tips to Minimize Your 2016 Taxes

As many dentists know, the upcoming year end is always the time to consider minimizing your taxes. Here are a few tips from the CPAs at the Dental CPAs.

1. Maximize your contributions to retirement plans. Contribute more to your 401k by the end of the year to reduce your taxable income and your tax bills.

2. Consider using a credit card to prepay expenses that can generate deductions for this year such as supplies. 
   
   
3. If possible, defer your income. Take capital gains in 2017 instead of 2016.  This move only will be beneficial if you think you will be in the same or a lower tax bracket next year.

4. Consider bonus depreciation, it’s a way to write off the cost of an asset purchased for business use. The Section 179 2016 deduction limit is $500,000, which can be used on new and used equipment and off-the-shelf software. To qualify for the deduction, the equipment must be financed or purchased and put into service by the end of the day on December 31, 2016.

Remember to keep records of the equipment or software purchases that you plan to claim for the Section 179 deduction, including where it was purchased, the date it was acquired, and the date it was placed into service.

5. Give away your money. If you were planning to give a lot of money to someone, utilize your annual gift exclusion of $14,000. This is not an income tax savings strategy but rather is an estate reduction strategy.  If you are concerned about having a large taxable estate, don’t miss the opportunity to utilize your annual gift exclusion each year.
   
   
6. Finalize your records. If you plan to deduct mileage on your personal car, make sure your mileage logs are complete.  Review how long you need to keep your paperwork before throwing out any records.
7. Sell investments such as stocks and mutual funds to realize losses. Then use those losses to offset any taxable gains you have realized during the year. Losses offset gains dollar for dollar.

8. If possible, contribute the maximum to your retirement account ($18,000 for 2016, $24,000 if you are age 50 or over). These accounts can grow to a substantial sum because they compound over time free of taxes.

9. Fund your IRA.  If you cannot make a deductible IRA contribution, consider whether you should make a non-deductible IRA contribution as it could become a possible future Roth IRA conversion for retirement or estate planning purposes.  You have until APRIL 15, 2017 to make IRA contributions for 2016 but the sooner you get the money into the account, the sooner it has the potential to start to grow tax-deferred.

10. Do an alternative minimum tax (AMT) analysis. If there’s a chance that you will be subject to AMT, analyze your deductions to see if you are better off waiting to make some of the above moves. Once AMT comes into play, some of the end of the year tax moves will have no tax benefit.  Deductions such as state income taxes and real estate taxes are always an AMT deductibility issue.

Getting A 2nd Opinion On Your Tax Return

Our Dental CPA team recently reviewed the 2014 income tax returns for a prospective client and were shocked at some of our findings. Had we been engaged for a year-end tax planning meeting well in advance of 12/31/14, this doctor would have saved almost $35k in taxes and other areas. Here’s what we found:

–         Owner Wages Too High
The client paid themselves wages of $130k which created an S-corp loss of $30k!(Yikes). The problem is they did not have a basis in their S-corp so the $30k loss was NOT deductible. Instead, what they should have done is kept their wages at no more than $100k and the S-corp income would have been $0 which would have lowered their income tax bill by at least $10k.

–         Spouses Wages Too High
We learned that they also paid their spouse to help manage the practice, which is a good idea, however, instead of a wage of $60k they should have kept it around $30k and saved $4,500 in payroll taxes on $30k of wages. In addition, they had S-corp losses from prior years to use up so the additional S-corp income of $30k that would have resulted would NOT have been taxed, saving another $10k in income taxes.

–          Not Reporting All Expenses
There were expenses missing or almost non-existent on the client’s corporate return such as meals, entertainment, automobile expense, travel expense, etc. We were told that these expenses existed, however, their preparer told them they were too risky to take even though we knew they could be substantiated. By failing to report these expenses, the clients likely missed out on at least $5k of deductions costing them around $2k in taxes.

–         Owner Occupied Rental Activity Loss
The Corporation rents the space they practice out of which the doctor owns personally thru an LLC. The activity generated a loss of $2,500 on the individual tax return which was not deducted and as owner-occupied real estate and making the proper election they were entitled to that deduction costing them $800 in taxes.

–         Other Unaddressed Issues
There were a couple other issues with the returns resulting in an additional $1,500 in taxes that could have been avoided. They also had the wrong retirement plan that likely cost them around $5k in unnecessary employee contributions.

Do yourself a favor and contact our Dental CPA team. We are happy to provide 2ndopinions on tax returns as a courtesy. There may be something that you can do BEFORE the year ends to lower your tax liability for 2015. Our team is here to guide you through the necessary steps. Contact us at 844-DENTCPA (336-8272) or email info@dentalcpa.com.

Can a Dentist Deduct Job Hunting Expenses? And the IRS Says...

Income Tax—Recent Graduates' Job Search Expenses: 

Expenses incurred by taxpayers when searching for new employment in the same trade or business are deductible as a miscellaneous itemized deduction [IRC Sec. 67(b) ]. Therefore, they are deductible only for regular tax purposes and only to the extent they and other miscellaneous itemized deductions exceed 2% of AGI. While the costs of finding first-time employment are not deductible, since first time employment by definition cannot be in the taxpayer's same trade or business (Rev. Rul. 75-120, 1975-1 CB 55 ), moving expenses associated with first-time employment are deductible if the time and distance tests in IRC Sec. 217(c)(1) are met. According to IRS Pub. 521 , Moving Expenses (For Use in Preparing 2011 Returns) : "If you go to work full time for the first time, your place of work must be at least 50 miles from your former home to meet the distance test."

Thanks for posting!  Do I just need to save receipts for U-Hauls/gas?

Yes, save all receipts and record ALL moving expenses. When you have your return prepared, let the CPA know. They'll let you know what's deductible and what may not be. It’s always better to give us too much info than not enough information....in my opinion.

This first appeared on Dentaltown.

For more information, please contact info@dentalcpas.com

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Year End Dental Tax Deduction Questions

Let’s say I show 50K in profits after everything has been paid in full, including any taxes on previous distributions.

If you're referring to income taxes they are not a deduction from the practice.

Let’s say I purchase a new op before year’s end.

Chair, light, cabinets, computers, isolight and it cost 25K. Can I then depreciate the 25K I spent on the op this year at 100%?

So now I have 25K of profits left.

That would leave me with a profit of 0K on paper.

Only if you deduct it twice, which you can't.

Then I could write myself a distribution of that left over 25K without paying one cent to taxes?

Nope, you'll owe tax on $25k plus any profit you used to pay prior year income taxes.

Another question: we are looking to hire another employee. I read/watched on TV…there will be a 6 month payroll tax holiday on new hires. Is this true? Do I have to wait until Jan. 2011 to hire or can I hire now in December?

I don't think anything has been passed yet. If you need an employee then hire them. It’s that simple

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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Are Dental Lab Fees Deducible?

I'm an associate at an office. I get 40% of collection after lab fees. Can I deduct those lab fees on my tax return? The lab fees never really officially show up on my pay. What do you think?

First, don't assume the owner is deducting the lab expense BEFORE calculating taxes. I have seen situations where the lab was deducted AFTER taxes were calculated, and if that's the case, YES, you can deduct them. However, if that is not the case, you're better off asking the owner to revise his calculations and revise your W-2.
Second, of course the owner is paying 100% of the lab. Then he's withholding 40% of that lab from your check. So in reality, he is now offsetting that expense for 40% of the lab. At the end of the day, he's only deducting 60%.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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Tax Deduction for Donated Dental Equipment and Clothing/Uniforms

I’m considering donating a Biolase Waterlase laser to my old dental school. I spoke to my accountant and he said that since my S-Corp already took a deduction on the purchase and the equipment is fully depreciated I cannot deduct the donation off my Corp return. If I take the laser out of the S-Corp, I would have to pay tax on the current value of the laser before I could donate it. Is there any way around this? It seems I am between a rock and a hard place in trying to donate a piece of equipment I rarely use and get a deduction on it. Thanks.

The accountant is correct. Think about it: do you think you should be able to deduct MORE than the cost of the equipment? Or, how many times should you be able to deduct the cost of a piece of equipment?

I know my accountant is correct. It’s just funny because I hear on occasion that people donate unused equipment and take a deduction they probably are not entitled to.

No doubt this happens. I just reviewed a 2008 return for a dentist where they took a deduction for "business attire" for approximately $2,300. I figured uniforms\scrubs\dry cleaning; however, I hate to assume, so I asked. It seems as though he was told he could write off most of his clothes he wears to work...

...and to think I’ve been missing out on that deduction for 26 years now

...I wear dress shirts etc. I asked my tax guy if I could deduct that and he says that I can.

Dress shirts are not "uniforms". If you read the code it says that if the clothing is "adaptable" to street use they are not deductible.

For example, the overalls an auto mechanic might wear that have the company name and the mechanic’s name on it would almost certainly be deductible as these are not the type of clothes they would go out on a Friday night wearing. Whereas your dress shirt is likely something you can wear out on a Friday night and therefore not deductible.

I’m certain you aren't the only one deducting dress shirts. That doesn't make it deductible though. I wonder if your tax guy deducts the clothes they wear to work.

I buy clothes maybe a couple times a year. Now if you really liked clothes (e.g. a woman who buys shoes and clothes all the time), then I’m sure that would be a different story.

Nope, it doesn't make a bit of difference. Whether you buy $50 of dress shirts or $5,000 of dresses and shoes, if they are adaptable to street use the code says they are not deductible. They don't assign a dollar figure to the deduction.

In the end though you should do what you're comfortable with and trust your "tax guys’" advice.

What if he wears those clothes to work as uniform? Is he still entitled for the deduction?

If they are indeed "uniforms", yes.

Clothes you can buy at Macys without practice name\logo are not considered "uniforms".

Interesting Tim. I give all my staff $150 for uniform allowance once a year, including the front office staff. I would send them the store and reimburse them with a receipt. These are clothes that they may have bought a Macy. I want the front desk to look nice because they are a reflection of the practice. Will these clothing be deductible?

As long as you slap your practice name and logo on them and call it a uniform....otherwise wouldn't we all LOVE to deduct our business clothing...suits, dress shoes, belts, etc?

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

Follow us on Twitter, Facebook and Pinterest