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!

Tax Savings for Dentists

Could you be paying too much in taxes for your dental practice? Below are five areas where you may be overspending.

Deducting Business Expenses

Other than the typical business expenses you’re probably aware of, like meals and entertainment and mileage, there are other deductible business expenses that could save you more on taxes. These include business insurance premiums, retirement plans, employee pay, medical benefits, rent, tax preparation services, and more. The key is if the business expense is ordinary and necessary.

Entity Type

Your dental practice’s business structure can also be a source of tax savings. For example, if you’re structured as a Limited Liability Corporation (LLC) or Sole Proprietorship, you’re paying the full amount of self-employment taxes, which are about 15 percent. If your practice is an S-Corporation, on the other hand, you only pay the employer’s share of self-employment taxes, or about 7.5 percent.

There are other savings in business structure, too. You could consider more than one entity type. For example, patient and insurance receivables go through an S-Corporation, which saves money on self-employment taxes. You also avoid the double taxation characteristic of a C-Corporation. Your secondary entity, a C-Corporation, is used for management and administrative expenses. Or, you can elect to have your LLC taxed as an S-Corporation, whereby only the owner’s salary is subject to full self-employment taxes.

Income shifting can be a complicated but very effective tax savings strategy.

Employee Benefits

Offering employee benefits is a win-win: you create a more engaged, productive work environment and you can typically write off the costs. A sample of employee benefits you can deduct is below.

• Medical
• Retirement
• Fringe Benefits, including:
  • Transportation costs
  • Insurance (disability, life, etc)
  • Dependent care
  • Education reimbursement

There is added value with employee benefits, since they’re not counted as taxable income (unless your staff pays a portion of fringe benefits).

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Check out these 20 U.S. companies with the best employee benefits.

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Medical Benefits

Because this can be such an overlooked area of tax savings, medical benefits merits its own section.

In general, you can write off the costs of the following payments on your dental practice’s taxes:

• Group health insurance premiums
• Health savings accounts (HSAs)
• Health reimbursement arrangements (HRAs)

An HRA option for smaller dental practices that do not offer group medical insurance is a Medical Expense Reimbursement Plan (MERP). MERPs allow you to cover a portion of your staff’s medical costs, including copayments, deductibles, and qualified medical expenses. In doing so, you can write off those medical expenses. MERPs can be useful for dental practices structured as sole proprietors or LLCs with less than 50 full-time and full-time equivalent employees. Although MERPs previously did not conform to ACA standards, updated regulations permitting MERPs took effect after December 31, 2016.

Note: if your dental practice is a sole proprietorship, maximizing medical benefits will be more difficult.

Year-End Tax Planning and Projections

There are few better ways to manage your tax burden than planning ahead. If you schedule a year-end planning session with your CPA, you can look at paying certain known expenses in December or making a charitable donation before year-end, both of which result in tax deductions. You will also get an idea of your income in the next year, and plan quarterly estimated payments. This saves money because if you underpay your taxes, you’ll incur a penalty come Tax Day.

We’re here to help manage your taxes. With tax season nearly over, now is a great time to plan for the rest of 2017. Contact our office to schedule an appointment.

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 

Six Mistakes to Avoid When Filing Taxes

1. Filing out tax forms with incorrect SSC numberThe 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. Since the majority of returns are now being filed electronically, a correct social security number is crucial. An incorrect social security number will result in the reject of an e-filed return. Double check all the numbers before submitting your return to ensure they are not transposed or missing digits.
   
   
2. 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. Also, watch out for spelling your business name incorrectly. Simple spelling errors can lead to rejected returns.
   
   

3. Not reporting non-deductible IRA contributions.Any contribution to an IRA, whether it is deductible or non-deductible, should be reported, 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 bank account information entered for refunds.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.
   
   

6. Forgetting your signature on your return!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.