From high personal income and equipment depreciation, to practice overheads and the cost of staffing, dentists and practice owners must deal with an often complex set of tax challenges.
From dental contractors tax planning, to tax planning for oral surgeons and dental practice owners, when dental professionals seek specialist help with their taxes, they can save thousands of dollars every year.
Here are some effective tax planning strategies recommended by experts that could help you as a dentist or practice owner:
Choosing the right entity structure
For dental practice owners operating as sole proprietors or single-member LLC, they typically pay maximum self-employment taxes on all net income. However, by converting to an S Corporation, high earning practice owners could save as much as $60,000 every year in payroll taxes. Note that sustaining these tax benefits is largely dependent on when the conversion takes place, the setting of a reasonable salary, and the maintenance of proper corporate formalities.
Guidance from a specialist in dental taxes will help you time everything to perfection.
Opting for the right retirement plan
Because dental practice owners tend to have small teams of employees in relation to their personal income, they are presented with several retirement planning opportunities that are quite unique. Cash balance and defined benefit plans enable owners of practices who are aged 45 and above, to contribute $150,00 to $300,000 every year, creating huge deductions in taxes. When combined with a 401(k) plan that features employer matching, total annual shelter can be close to $400,000.
Capitalizing on equipment and technology depreciation
Digital imaging systems, lasers, CAD/CAM machines and other expensive but essential items of equipment are heavily invested in by dental practices. However, such expenditures qualify for Section 179 expensing and bonus depreciation, allowing dentists to deduct their full purchase price, immediately. Tax specialists can advise dentists of the best time to make such purchases, for instance, timing them to coincide with years in which income has been high, can optimize the tax benefits.
Real estate tax planning
A lot of dentists are practice owners through an LLC partnership that’s separate, allowing them to pay rent to the real estate entity, and take advantage of flexibility in terms of tax planning. Talk to a dental tax expert about a cost segregation study on the building, which can significantly accelerate depreciation deductions. For long-term real estate, a 1031 exchange upon sale can defer the capital gains tax entirely.
Real estate investment strategies
It’s not uncommon for high-earning dentists to invest in real estate for the sole purpose of reducing their taxes. When guided by experienced accounting services for dentists, the combination of a short-term rental strategy with cost segregation, can create significant deductions against the practice’s income. To further multiply the tax savings, the dentists spouse can qualify for real estate professional status.
For dentists and practice owners, they can make transforming their financial picture so much simpler with sound tax planning supported by expert guidance. An investment few dental professionals go on to regret, consulting with tax experts who specialize in the dental industry, can unlock significant tax savings, and also, make tax season a lot less stressful.