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!

At a Glance: Important Tax Deadlines for March and April

According to a recent study on dental practice seasonality trends, March and April are among the busiest months of the year. Does this sound like your dental practice?

If so, you’ve no doubt also noticed this coincides with tax season. To help make your busiest months a little easier, here are the tax deadlines for March and April.

March 15

Dental Partnerships should File a 2016 tax return (Form 1065). Provide each partner in your dental practice with a copy of Schedule K-1 of Form 1065, or a substitute Schedule K-1. To request an automatic 6-month extension to file the return and provide Schedules K-1, use Form 7004 to extend your filing deadline to September 15.

Large Dental Partnerships (100+ partners) should file a 2016 tax return (Form 1065-B). Provide each partner in your dental practice with a copy of Schedule K-1 of Form 1065-B, or a substitute of Schedule K-1. This due date applies even if you request an extension of time to file Form 1065-B by filing Form 7004. To request an automatic 6-month extension and move your filing deadline to September 15, use Form 7004.

If your dental practice is structured as an S-Corporation, file a 2016 income tax return (Form 1120S) and pay any tax due. Provide each shareholder with a copy of Schedule K-1  of Form 1120S, or a substitute of Schedule K-1. To get an automatic 6-month extension of time to file, use Form 7004 and pay what you estimate you owe on your return.

If your dental practice is electing S corporation treatment beginning with calendar year 2017, you should file Form 2553 (Election by a Small Business Corporation). If you file Form 2553 late, S corporation treatment of your dental practice will begin with calendar year 2018.

March 31

File the following forms with the IRS if they apply to your dental practice. Note that a deadline of March 31 for these forms only applies if you’re filing online.

• Form 1098 (Mortgage Interest Statement)
• Form 1099 (Self-Employment Income)
• Form 3921 (Exercise of an Incentive Stock Option), and
• Form 3922 (Transfer of Stock Acquired Through an Employee Stock Purchase Plan)

April 18

Dental Corporations should file a 2016 income tax return (Form 1120) and pay any tax due. To request an automatic 6-month extension of time to file, use Form 7004 and pay what you estimate you owe on your return.

You should also deposit the first installment payment for your 2017 estimated income tax.
If you’re not already working with Dental CPAs for your practice’s tax planning, contact us today. We can help manage your tax liability and reduce your stress during your busiest months.

For more information, contact out DentalCPA team at 844-DENT CPA (336-8272) or email info@dentalcpas.com 

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.

The Top Twelve Mistakes Dentists Make Filing Their Taxes

Lance Jacob of the Dental CPAs has compiled a list of the top twelve most common tax filing mistakes that he sees his dental clients making. If you don't have a dental CPA, contact Lance.    

Filling out tax forms with an incorrect Social Security number. The IRS computers will automatically reject your deductions and credits if your Social Security number is wrong.[i] This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes.  Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits. Since the majority of returns are now being filed electronically, a correct social security number is paramount. An incorrect social security number will result in the reject of an e-filed return.   

Double dipping on dependents for divorced taxpayers. Ill repercussions could result such as additional taxes, penalties, and interest charged.[ii]  A child can ultimately meet the rules to be a qualifying child of only one person.[iii] Once divorced, your children do not duplicate out of thin air; therefore they cannot be claimed twice in taxes.  The IRS does not allow both divorced taxpayers to claim a child as a dependent. 

Not reporting non-deductible IRA contributions.  Any contribution to an IRA, whether it is deductible or non-deductible, should be reported on Form 8606, so when you withdraw it you are not taxed on it.  Plain and simple, all contributions to an IRA must be reported.

Incorrectly reported estimated tax payments.  If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment.  Provide the check numbers, dates of payment, and the amount of each payment.  What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two.  If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

Incorrect Federal ID number used on 1099 MISC.  Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number.  If they use the wrong number the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return.

Exceeding the mortgage interest deduction limit on Mortgage and home equity debt in excess of $1.1million.  This error commonly falls as the fault of both the taxpayer and accountant.  They only deduct the amount reported of the mortgage interest statement, Form 1098, and do not bother to check the amount of mortgage the taxpayer has.  The tax laws limit the amount of deductible interest to the interest on the first $1,000,000 of home mortgage debt and $100,000 of home equity debt[iv].  So if you have a mortgage of $2 million, you can only deduct mortgage interest related to the first $1.1 million in total debt.   

Standard mileage vs. actual expenses.  Mistakes in this area come from inconsistent use of methods.  If your car is for business purposes only, then the entire cost of its operation can be deducted.  However, if the car is used for both business and personal use, only the cost of its business use can be deducted. The amount of your deductible car expense can be found using either the standard mileage rate method or the actual expense method. [v]  Some people will qualify for both methods but you must choose only one method when you start using the vehicle and continue with that method until you replace the vehicle.  Be sure to figure your deduction with both methods initially to see which gives you the larger of the deductions.

First-Time Homebuyer Credit recipients unaware of the fine print.  Those who received a First-Time Homebuyers’ Credit towards their purchase of a home settled on prior to 12/31/08 must begin repaying that money on 2010 tax returns. Now is the time to take a good hard look at the details of this credit. Many who accepted the $7,500 credit may not realize that it was in fact a loan, and the government will begin not-so-politely asking for the money back over the course of the next 15 years starting with 2010 individual tax returns. As with any federal money however, there is a lot of fine print to read into on this one. Use form 5405. [vi]

Forgetting to tell your tax preparer you took an early distribution on an IRA; therefore, failing to calculate the early distribution penalty of 10%.  If you are under the age of 59.5, a distribution on an IRA (including employer matching and profit sharing) is considered early, and subject to a 10% additional tax.  This tax is in addition of other taxes that apply to the distribution.[vii]

Forgetting your signature on your return! If you were an artist, you wouldn’t forget to sign your masterpiece upon its completion, would you? You must sign your taxes for the IRS to process your taxes.  Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned.  These software packages do not allow documents to be sent unless every step is completed. 

Incorrect bank account information for refund. If you are having your accountant file your returns electronically and want your refunds directly deposited (or payments automatically) withdrawn from your checking or savings account, provide the correct account information including name of bank, bank routing number, and account number. This will avoid delays in processing your refunds and/or payments

Forgetting to file a Form 1099 for rental property or a business as a sole proprietor.

 The IRS now requires you to answer the following questions

1.     “Did you make payments during the tax year that would require you to file Form(s) 1099? (these are forms used for rents, non-employee compensation, interest, and other income).

2.     “If yes have you or will you file all required Form(s) 1099?

It is important for your accountant to ask this question of the client and also important for the taxpayer to be aware when a 1099 is needed. You can see the problem you might have if you answer yes to the first question and no to the second.

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[i] http://www.walletpop.com/taxes/most-common-taxpayer-mistakes/

[ii] http://taxes.about.com/od/dependents/a/Dependents.htm

[iii] http://www.irs.gov/individuals/article/0,,id=218767,00.html

[iv] http://www.irs.gov/publications/p936/ar02.html

[v] http://www.irs.gov/taxtopics/tc510.html

[vi]http://money.cnn.com/2009/09/24/pf/expert/home_buyer_credit.moneymag/index.htm

[vii] http://www.irs.gov/faqs/faq/0,,id=199762,00.html

The Top Ten Mistakes Dentists Make Filing Their Taxes

Lance Jacob of the Dental CPAs has compiled a list of the top ten most common tax filing mistakes that he sees his dental clients making. If you don't have a dental CPA, contact Lance.    

 

1.      Filling out tax forms with an incorrect Social Security number. The IRS computers will automatically reject your deductions and credits if your Social Security number is wrong.[i] This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes.  Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits.   

2.      Double dipping on dependents for divorced taxpayers. Ill repercussions could result such as additional taxes, penalties, and interest charged.[ii]  A child can ultimately meet the rules to be a qualifying child of only one person.[iii] Once divorced, your children do not duplicate out of thin air; therefore they cannot be claimed twice in taxes.  The IRS does not allow both divorced taxpayers to claim a child as a dependent. 

3.      Not reporting non-deductible IRA contributions.  Any contribution to an IRA, whether it is deductible or non-deductible, should be reported on Form 8606, so when you withdraw it you are not taxed on it.  Plain and simple, all contributions to an IRA must be reported.

4.      Incorrectly reported estimated tax payments.  If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment.  Provide the check numbers, dates of payment, and the amount of each payment.  What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two.  If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

5.      Incorrect Federal ID number used on 1099 MISC.  Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number.  If they use the wrong number the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return.

6.      Exceeding the mortgage interest deduction limit on Mortgage and home equity debt in excess of $1.1million.  This error commonly falls as the fault of both the taxpayer and accountant.  They only deduct the amount reported of the mortgage interest statement, Form 1098, and do not bother to check the amount of mortgage the taxpayer has.  The tax laws limit the amount of deductible interest to the interest on the first $1,000,000 of home mortgage debt and $100,000 of home equity debt[iv].  So if you have a mortgage of $2 million, you can only deduct mortgage interest related to the first $1.1 million in total debt.   

7.      Standard mileage vs. actual expenses.  Mistakes in this area come from inconsistent use of methods.  If your car is for business purposes only, then the entire cost of its operation can be deducted.  However, if the car is used for both business and personal use, only the cost of its business use can be deducted. The amount of your deductible car expense can be found using either the standard mileage rate method or the actual expense method. [v]  Some people will qualify for both methods but you must choose only one method when you start using the vehicle and continue with that method until you replace the vehicle.  Be sure to figure your deduction with both methods initially to see which gives you the larger of the deductions.

8.      First-Time Homebuyer Credit recipients unaware of the fine print.  Those who received a First-Time Homebuyers’ Credit towards their purchase of a home settled on prior to 12/31/08 must begin repaying that money on 2010 tax returns. Now is the time to take a good hard look at the details of this credit. Many who accepted the $7,500 credit may not realize that it was in fact a loan, and the government will begin not-so-politely asking for the money back over the course of the next 15 years starting with 2010 individual tax returns. As with any federal money however, there is a lot of fine print to read into on this one.[vi]

9.      Forgetting to tell your tax preparer you took an early distribution on an IRA; therefore, failing to calculate the early distribution penalty of 10%.  If you are under the age of 59.5, a distribution on an IRA (including employer matching and profit sharing) is considered early, and subject to a 10% additional tax.  This tax is in addition of other taxes that apply to the distribution.[vii]

10.  Forgetting your signature on your return! If you were an artist, you wouldn’t forget to sign your masterpiece upon its completion, would you? You must sign your taxes for the IRS to process your taxes.  Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned.  These software packages do not allow documents to be sent unless every step is completed. 

---

[i] http://www.walletpop.com/taxes/most-common-taxpayer-mistakes/

[ii] http://taxes.about.com/od/dependents/a/Dependents.htm

[iii] http://www.irs.gov/individuals/article/0,,id=218767,00.html

[iv] http://www.irs.gov/publications/p936/ar02.html

[v] http://www.irs.gov/taxtopics/tc510.html

[vi] http://money.cnn.com/2009/09/24/pf/expert/home_buyer_credit.moneymag/index.htm

[vii] http://www.irs.gov/faqs/faq/0,,id=199762,00.html

You can contact Lance Jacob with additional questions or comments at ljacob@dentalcpas.com or (800) 772-1065. www.dentalcpas.com

For more information, please contact info@dentalcpas.com

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Top Ten Mistakes Dentists Make When Filing Their Tax Returns - 2011

Lance Jacob of the Dental CPAs has compiled a list of the top ten most common tax filing mistakes that he sees his dental clients making.

1. Filling out tax forms with an incorrect Social Security number. The IRS computers will automatically reject your deductions and credits if your Social Security number is wrong. This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes. Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits.

2. Double dipping on dependents for divorced taxpayers. Ill repercussions could result such as additional taxes, penalties, and interest charged. A child can ultimately meet the rules to be a qualifying child of only one person. Once divorced, your children do not duplicate out of thin air; therefore they cannot be claimed twice in taxes. The IRS does not allow both divorced taxpayers to claim a child as a dependent.

3. Not reporting non-deductible IRA contributions. Any contribution to an IRA, whether it is deductible or non-deductible, should be reported on Form 8606, so when you withdraw it you are not taxed on it. Plain and simple, all contributions to an IRA must be reported.

4. Incorrectly reported estimated tax payments. If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment. Provide the check numbers, dates of payment, and the amount of each payment. What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two. If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

5. Incorrect Federal ID number used on 1099 MISC. Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number. If they use the wrong number the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return.

6. Exceeding the mortgage interest deduction limit on Mortgage and home equity debt in excess of $1.1million. This error commonly falls as the fault of both the taxpayer and accountant. They only deduct the amount reported of the mortgage interest statement, Form 1098, and do not bother to check the amount of mortgage the taxpayer has. The tax laws limit the amount of deductible interest to the interest on the first $1,000,000 of home mortgage debt and $100,000 of home equity debt . So if you have a mortgage of $2 million, you can only deduct mortgage interest related to the first $1.1 million in total debt.

7. Standard mileage vs. actual expenses. Mistakes in this area come from inconsistent use of methods. If your car is for business purposes only, then the entire cost of its operation can be deducted. However, if the car is used for both business and personal use, only the cost of its business use can be deducted. The amount of your deductible car expense can be found using either the standard mileage rate method or the actual expense method. Some people will qualify for both methods but you must choose only one method when you start using the vehicle and continue with that method until you replace the vehicle. Be sure to figure your deduction with both methods initially to see which gives you the larger of the deductions.

8. First-Time Homebuyer Credit recipients unaware of the fine print. Those who received a First-Time Homebuyers’ Credit towards their purchase of a home settled on prior to 12/31/08 must begin repaying that money on 2010 tax returns. Now is the time to take a good hard look at the details of this credit. Many who accepted the $7,500 credit may not realize that it was in fact a loan, and the government will begin not-so-politely asking for the money back over the course of the next 15 years starting with 2010 individual tax returns. As with any federal money however, there is a lot of fine print to read into on this one.

9. Forgetting to tell your tax preparer you took an early distribution on an IRA; therefore, failing to calculate the early distribution penalty of 10%. If you are under the age of 59.5, a distribution on an IRA (including employer matching and profit sharing) is considered early, and subject to a 10% additional tax. This tax is in addition of other taxes that apply to the distribution.

10. Forgetting your signature on your return! If you were an artist, you wouldn’t forget to sign your masterpiece upon its completion, would you? You must sign your taxes for the IRS to process your taxes. Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned. These software packages do not allow documents to be sent unless every step is completed.

http://www.walletpop.com/taxes/most-common-taxpayer-mistakes/

http://taxes.about.com/od/dependents/a/Dependents.htm

http://www.irs.gov/individuals/article/0,,id=218767,00.html

http://www.irs.gov/publications/p936/ar02.html

http://www.irs.gov/taxtopics/tc510.html

http://money.cnn.com/2009/09/24/pf/expert/home_buyer_credit.moneymag/index.htm

http://www.irs.gov/faqs/faq/0,,id=199762,00.html
You can contact Lance Jacob with additional questions or comments at ljacob@dentalcpas.com  or (800) 772-1065. http://www.dentalcpas.com/

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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