Taxes, taxes and more taxes. Tax efficiency in your medical, dental or veterinary practice is always a key goal, but it is sometimes hard to know which strategy may be right for you or your practice and then finding the time to review and make sure it fits your situation. At NC Planning our proactive review and planning model ensures review of tax efficiency as part of your legal planning.
Here are some of those key strategies which may be applicable to you or your practice:
1. Cost Segregation: If you own the real estate and recently upgraded or expanded a substantial portion of the practice then consider this valuation procedure to help accelerate deductions for depreciation.
2. Charity: Whether it is service, money or property always consider the deductibility of charitable contributions. The key is to make sure these are evaluated before year-end and the right assets are gifted to maximize any deduction. The full value of the property is tax-deductible as a charitable contribution if held for a minimum term.
3. 401k or IRA: Consider funding your retirement plans to the fullest with pre-tax dollars for that beneficial tax-free growth. Even if it’s not deductible from income, they provide great retirement savings strategies and have creditor protection status as well.
4. S-Corporation Salary: Make sure you have reviewed and considered what amount should be taken as salary v. profit as an employee-owner of your practice. Significant savings in payroll taxes are possible with the proper review and reporting.
5. Buy, Buy, Buy: If you are looking for that year-end deduction amount then nothing is more known than the purchasing of supplies, lab, practice expenses and higher ticket items such as equipment before December 31.
6. Rent the Beach House: As long as you rent that vacation home less than the IRS maximum allowed any income received can be tax free. Even better is to consider having a retreat, meeting or other practice gathering there and allow the practice to pay the rent expense.
7. Keep Track of Reimbursements: Make sure the practice reimburses you for all business-related expenses that came out of your personal wallet. It is sometimes surprising how much the travel, entertainment, vehicle expenses, dues, legal and other planning fees add up to. If you are only an employee and not an owner still keep track of any expenses that aren’t reimbursed but you do have to meet a percentage floor of your adjusted gross income to be able to deduct.
8. Fully Deductible Expenses: Make sure you keep track and let your accountant know which of those expenses are for travel, lodging, continuing education, in-office meetings or lunches as those are typically fully deductible v. only 50% deductible.
9. Estate Planning: Never forget that taxes not only play a part in the now of your practice and life, but they are also a huge factor in your practice succession, retirement and estate planning. Careful consideration should be given to taxes that may impact structure and goals.
10. Mortgage and Debt Efficiency: If you have loans make sure they are tax deductible, if possible. Consider the shift of certain debt which is otherwise not tax deductible to loans or equity lines which are.
11. Goodwill: Not always something that is considered when you are running the practice, but don’t underestimate the value of goodwill if you are buying into a practice as a junior equity partner or if you are fully selling your practice ownership or assets to an outside third-party. The depreciation benefits can be tremendous.
12. Family Business: If reasonable, consider employing your spouse and children if there is productive work for them to do. This not only helps the practice, but also sometimes allows income to be taxed at lower rates and for spouse to contribute to social security and/or retirement savings plan.
13. Review the Rent: If you also own the real estate for the practices (typically in a separate LLC) then make sure you review the rental rates and how the Medicare and other taxes play into the total picture of rental income. However, if you increase the rent to market rate it may also provide potential to reduce payroll taxes or to other lower-income owners of the LLC.
14. Buy the SUV: Consider purchasing that SUV or truck which the IRS allows some specific tax breaks on. Not a truck/SUV person? Still consider purchase of the vehicle, especially where it is predominantly used for business purposes.