6 Ways How a Dental Practice Can Increase Its Tax Benefits

People go to their dentists to get treatments to ensure their teeth are in peak condition. While the services a dental practice provides are high-value, it still operates as a business, meaning it is subject to using marketing strategies and remaining competitive. Of course, this also requires adhering to financial regulations, such as filing taxes.

Filing taxes for a dental practice is the same as with any other business. For this reason, they are encouraged to prepare and file during tax season because it ensures they comply with tax regulations and avoid any late penalties or interest that could incur. However, the tax burden is often more significant for dental practices because they must deal with various taxes, including sales and use, payroll, and property. The good news is that there are ways for dental practices to increase their tax benefits, such as:

#1 – Use the Right Corporate Structure

The corporate structure of a dental practice should be set up to offer the most tax benefits. The most recommended structure is the S-corp, which allows dental practices to avoid double taxation and take advantage of other tax benefits, such as deductions and credits. Additionally, S-corps may be eligible for lower tax rates than other business structures.

Another option is the C-corp, which is similar to the S-corp but also allows for raising capital by offering ownership shares. However, C-corps are subject to double taxation, so you must know the pros and cons before deciding.

#2 – Give to Charitable Contributions

Making charitable contributions is an excellent way for dental practices to give back to their community and support important causes. Charitable donations may be tax deductible, depending on the type of organization and the amount donated. Donations may also increase a practice’s visibility and create goodwill with patients.

Dental practices may donate money, goods, or services to charities. Money donations are the most common and are generally tax deductible. Goods donations, such as equipment or supplies, are also tax deductible, although the deduction may be limited to the fair market value of the items.

#3 – Contribute to a Retirement Plan

Contributing to a retirement plan is an excellent way for dental practices to save for their future. Retirement plans, such as 401(k)s, IRAs, and SEP IRAs, allow employers to contribute a portion of their profits to an account that can be used to fund retirement. By contributing to a retirement plan, dental practices can provide financial security for themselves and their employees.

Retirement plans are a great way to save for the future and provide a tax advantage. Contributions to 401(k)s and IRAs are tax deductible, reducing the amount of income subject to taxes. Additionally, any earnings from the retirement plan are only taxed once they are withdrawn. This allows the money to grow tax-free, potentially resulting in a bigger nest egg for retirement.

#4 – Open Up 529 Plans for Your Children

A 529 plan is a tax-advantaged savings plan designed explicitly for education expenses. States sponsor these plans, allowing parents to save money for their children’s college education with tax-free growth and withdrawals. 529 plans can pay for tuition, books, and other related expenses.

Contributions to the plan are made with after-tax dollars, but the money grows tax-free and can be withdrawn tax-free when used for qualified education expenses. Additionally, 529 plans offer flexibility because the funds can be used for any higher education institution, including trade schools, two-year colleges, and four-year universities.

#5 – Open a Reimbursement Plan for Medical Expenses

A medical reimbursement plan is a benefit employers offer their employees. The plan allows employees to pay for medical expenses out of their own pocket, submit a claim to their employer, and then receive reimbursement.

The employer typically determines the amount of money that can be reimbursed, and the plan may also include a deductible and a maximum spending limit. Employees can use the money to pay for medical expenses such as doctor visits, hospital stays, prescription medications, and medical supplies.

#6 – Hire a Family Member at Your Practice

Hiring a family member to work at your dental practice may seem counterintuitive. However, this can work wonders if you want to increase your tax benefits because you can save on taxes. When you hire a family member, you can declare their salary as a business expense and deduct it from your income. This can be especially beneficial if you are in a higher tax bracket.

You can also save on employment taxes, as you don’t have to pay FICA and unemployment insurance for family members. Plus, you can be sure your family member would be dedicated to the job and take the practice seriously.

Conclusion

A dental practice must pay taxes and consider ways to reduce its tax burden. Arranging your financial records will be challenging, but it is worth it because it can help you save money. All that matters is doing everything right to ensure that the practice is profitable and that you can maximize your tax benefits.

Ash Dental CPA provides top-quality bookkeeping services for dentists. Our professional CPA team specializes in providing services for dental practices, so we guarantee that your financial records are accurately arranged in time for tax season. Call us today at