How Dental Practices Can Reduce their Tax Burden in 5 Steps

Dental practices, like all small businesses, must pay taxes on their income. However, there are ways to reduce the tax burden and keep more money. This article outlines five steps dental practices can take to reduce their tax burden and maximize profits. 

Step 1: Maximize Deductions

One of the most effective ways for dental practices to reduce their tax burden is to maximize deductions. Deductible expenses include office supplies, equipment, rent, utilities, and employee salaries. 

Dental practices can claim all allowable deductions and reduce their taxable income by keeping track of all expenses and ensuring that they are properly documented.

In addition, dental practices can consider investing in certain equipment or technology that qualifies for a Section 179 deduction. This deduction allows businesses to deduct the full cost of the equipment or technology in the year it was purchased, rather than depreciating it over time.

Step 2: Take Advantage of Tax Credits

Tax credits are another way for dental practices to reduce their tax burden. Tax credits are dollar-for-dollar reductions in the amount of taxes owed. There are several tax credits that dental practices may be eligible for, including the Work Opportunity Tax Credit, the Small Business Health Care Tax Credit, and the Research and Development Tax Credit.

Dental practices should also consider investing in energy-efficient equipment or making energy-efficient upgrades to their building. These investments may qualify for the Energy-Efficient Commercial Buildings Tax Deduction, which can provide a tax deduction of up to $1.80 per square foot.

Step 3: Consider Entity Structure

The entity structure of a dental practice can have a significant impact on its tax burden. Most dental practices are structured as either sole proprietorships, partnerships, or S corporations. Each entity structure has its own tax implications, and dental practices should choose the structure that best suits their needs.

For example, S corporations are a popular choice for dental practices because they provide the benefits of a partnership, such as pass-through taxation, while also limiting the personal liability of the business owners. However, S corporations are subject to certain restrictions and requirements, and dental practices should consult with a tax professional to determine if this entity structure is right for them.

Step 4: Plan for Retirement

Dental practices can also reduce their tax burden by planning for retirement. Contributions to retirement accounts, such as 401(k) plans or IRAs, are tax-deductible and can reduce the taxable income of the practice. In addition, retirement plans can benefit employees and help attract and retain top talent.

There are several retirement plan options available to dental practices, including traditional 401(k) plans, SIMPLE IRAs, and SEP IRAs. Dental practices should consult with a financial advisor to determine the best plan for their needs.

Step 5: Hire a Professional

Finally, dental practices should consider hiring a professional to help them manage their finances and reduce their tax burden. A tax professional can offer guidance on deductions, tax credits, entity structure, and retirement planning. They can also help with tax planning and ensure that the dental practice is in compliance with all tax laws and regulations.

Conclusion

Reducing the tax burden of a dental practice requires careful planning and attention to detail. By maximizing deductions, taking advantage of tax credits, choosing the right entity structure, planning for retirement, and hiring professional, dental practices can keep more money in the business and maximize their profits. Dental practices should consult with a tax professional to determine the best strategies for their specific situation.

Looking for an experienced accountant for dentist to help you reduce your tax burden and maximize your profits? Ash Dental CPA has got you covered! Our team of experts specializes in providing tax planning and financial management services for dental practices. Contact us today to learn how we can help your practice succeed.