Tax Time: Here We Go Again
By: Luke Gheen, CPA, MBA
It’s the time of year that many dental professionals dread: tax time. After a year of pushing your practice forward and providing world-class care, you now must relinquish too much of your hard-earned income to the United States Treasury. Most dental professionals are happy – even proud – to pay their “fair share” of tax. But why does it often feel like an “unfair share”? For most, if their taxes could be substantially reduced, their whole perspective on work, length of their career and retirement aspirations would alter. Is significant tax reduction possible?
The Importance of Planning
“Buy some more equipment” is not tax planning. “If you don’t like your tax bill, make less money” is not tax planning. So, what is tax planning? It’s a proactive, systematic method of forecasting, communication and action – directed by your CPA – that should be accomplished
throughout the year (not after the fact). There are dozens of valid ways to save money in taxes. Not all of them are right for you, and not all of them can be done after the year is over. With the help of a trained professional, you can identify hidden treasure and lower your tax bill so more of your wealth stays in your pocket.
Sunken Treasure: The Business Deductions You Are Probably Missing
Before you spend another dime, create a process for recording each and every expense. Once you see where your money is going, you can work with your CPA to maximize your deductions. Business owners often overlook savings opportunities. By reviewing the following categories you can see what might apply to your situation.
Costs of Maintaining a Home Office
Running a company requires round-the-clock availability, and you are probably called upon at all hours to resolve employee and patient concerns. Chances are, there is an area in your home specifically dedicated to business activities. If not, it is worthwhile to establish one. Even if you already have space set aside on the premises of your business, you can deduct expenses associated with a home office on your personal tax returns.
Tax Deductions for Business Vehicles
As with any major equipment purchase, the best time to consult with your CPA is before you buy a vehicle. The decision to buy versus lease can impact your tax liability, and cars and light trucks offer smaller tax benefits than their larger counterparts. Bigger tax deductions are
typically available for vehicles over 6,000 pounds, so you may discover that the extra cost of a full-size truck or van is worthwhile once you calculate tax savings. For context, the curb weight of an average midsize car is approximately 3,500 pounds while a full-size truck or SUV weighs 5,500 pounds or more.
Expenses Related to Branding and Marketing
Getting the word out about your practice should be a big focus each year. After all, it doesn’t matter how good your services are if nobody knows about them. In addition to traditional advertising methods such as billboards, radio and print, digital marketing offers extensive
opportunities to make connections with your target demographic. Creating digital content like articles, images and videos is critical for attracting clientele. When added to must-haves like business cards and brochures, marketing quickly gets expensive. Fortunately, many
of these expenses are tax-deductible. The basic costs of marketing materials aren’t your only opportunity for tax savings. You may also be able to include expenses associated with hiring professional graphic designers, content creators, videographers and the like.
Lowering Taxes with Training and Development
Building a practice from the ground up requires a specialized skill set, but you need an entirely separate set of skills to manage the organization for long-term success. Though you probably already have a solid base of knowledge, continuous learning can ensure you overcome unexpected obstacles. Some practice owners pass up training and development opportunities such as classes, workshops and seminars because the associated expense just doesn’t fit their budget. Fortunately, tax regulations are designed to make learning affordable. The costs of training and development are often tax deductible, and that’s not all. You may be able to write off your investment in books, trade magazine subscriptions and dues paid to professional organizations if you can show they are relevant to your work.
Bringing Family on Board
One of the greatest joys of owning your own company is the opportunity to work side-by-side with your loved ones. Many small business owners rely on their spouse and children to manage day-to-day operations. Parents enjoy extra time with their kids, and they have a chance to pass along critical life skills. Children get a chance to earn their own money while learning the inner workings of the business world. If your employees are also dependents, you may qualify for significant tax savings. There are some nuances to claiming these types of tax benefits, so be sure to connect with your CPA before hiring family members.
Setting funds aside for retirement is a financial priority, and business owners have a variety of options for tax-advantaged accounts. When your spouse is also your employee, you have even more opportunities to save. Both you and your spouse can continue to contribute to
traditional IRAs, Roth IRAs or qualified plans sponsored through your company. You will enjoy the standard tax savings that come with these plans and your business can take deductions for contributions made on behalf of both you and your spouse. With some advanced planning, some retirement plans can be stacked together to create tremendous savings opportunities. Talk to your CPA to learn more.
Showing Appreciation on Service Anniversaries
Employees take note of their years of service, and it gives them a boost when you notice their commitment to the organization. You may be able to deduct the cost of length of service awards if you give a gift instead of cash. The item must be valued at $400 or less, and you are
limited to one gift per employee every five years. This offers plenty of room for creativity: you can send flowers, present a piece of jewelry or a watch or give staff members a selection of items from which to choose.
Saving on Taxes While Seeing the World
You are already deducting your business travel expenses, but you may be missing out on a chance to save even more. It is becoming quite common to combine business travel with leisure trips to bring down the costs of both. For example, if you attend a conference in an exotic location, your travel expenses are likely to be deductible. You can increase your savings by inviting your family along and extending the trip a few days. Their travel won’t be tax deductible, and the extra non-working days you take can’t be deducted, either. However, when costs are allocated appropriately, the total out-of-pocket cost of your family vacation will be substantially lower. When you use this method of combining business and personal travel, make sure your record-keeping is flawless. Your CPA is an important partner for this strategy, ensuring that the business deductions you claim accurately reflect your travel.
Identifying and applying all possible deductions is a bit like searching for sunken treasure. Many potential savings opportunities are well hidden. However, when you put the time and energy into locating the treasure, the financial rewards are well worth your efforts.
Luke Gheen, MBA, CPA is a longtime resident of Colorado with extensive corporate finance and accounting experience. He graduated with a bachelor’s degree in Business Administration from the University of Colorado in 1999, and received his MBA from the University of Colorado in 2007. Luke started Gheen & Co., CPA in 2010. Luke is a member of the American Institute of Certified Public Accountants. He relishes spending time with his wife, three sons, daughter and extended family.
The Metro Denver Dental Society is a not-for-profit component society of the American Dental Association and the Colorado Dental Association.