Quarter 4 is an important time for Dental Practice owners and Dentists working as Independent Contractors to make strategic tax moves to optimize their financial situation before the end of the tax year. Here are some tax moves to consider in the fourth quarter:
- Review Financial Statements: Begin by reviewing your financial statements for the year. This will help you understand your current financial position and identify areas where you may need to make adjustments.
- Maximize Deductions:
- Section 179 Deduction: Consider taking advantage of the Section 179 deduction for qualifying equipment and property purchases. In 2021, you could deduct up to $1.05 million, subject to certain limits.
- Bonus Depreciation: Evaluate whether you can benefit from bonus depreciation, which allows you to write off a significant portion of certain asset purchases in the first year.
- Purchase or Build another location: You can use a combination of the above two strategies in conjuncture with opening another location prior to 12/31
- Tax Credits: Investigate tax credits available to your business. Research and determine if you’re eligible for credits such as the Work Opportunity Tax Credit, Research and Development Tax Credit, or others that may apply to your industry.
- Charitable Contributions: If your business is considering making charitable contributions, make them before the end of the year to take advantage of deductions.
- Healthcare Expenses: Ensure that you’re maximizing health-related tax benefits, such as contributions to Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs).
- Retirement Contributions: Contribute as much as possible to retirement accounts, such as a 401(k) or SEP-IRA. These contributions are tax-deductible and can help reduce your taxable income. The amount you can deduct depends on your business structure, so we advise running your scenario past your tax consultant to ensure you don’t contribute over the limit allowed if you have employees.
- Purchase Real Estate Using the STR Strategy: This is a more complex strategy but you can get significant tax savings by purchasing a property and turning it into s Short Term Rental (AirBnB). Be sure to consult with your tax consultant prior to using this strategy as it as many complexities.
- Purchase the Real Estate your Dental Practice Operates from: You can use this strategy in conjecture with additional real estate strategies to significantly lower your tax burden. Beware there are strict rules to follow to qualify for the large deduction. Consult with your tax consultant to see if this would help you prior to making any purchases.
- Hiring your children in a separate business outside of your practice: There is significant potential here, especially if you have teenage children. However most Dental Practices are S corps and the strategy blows up here. However if you or your spouse own a different business there can be some savings implemented once al the pieces are reviewed.
- Quarterly Estimated Taxes: If your business pays quarterly estimated taxes, make sure you’re on track and adjust your payments if necessary to avoid underpayment penalties.
- Review Tax Law Changes: Stay up to date with any changes in tax laws or regulations that could impact your business. Consult with a tax professional to understand how these changes affect your situation.
- Consider Year-End Bonuses: Evaluate whether year-end bonuses for employees or owners make sense for your business. These can be deductible expenses.
- Record-Keeping: Ensure that your financial records are accurate and up to date. Good record-keeping is essential for tax compliance and can help you identify opportunities for deductions.
- Plan for Next Year: Use this time to start planning for the upcoming tax year. Consider any changes in your business structure, goals, or operations that might impact your tax strategy.
Remember that tax laws can change, so it’s essential to stay informed and adapt your tax strategy accordingly. Work with a Dental Tax Strategist who can provide personalized advice based on your specific business situation.