Tax Considerations for Dental Practices as 2013 Tax Year Ends
Dental practices face significant tax issues each year which often leave them unprepared when the time for filing comes due in April. It is certainly wise to start preparing for that time in 2014 as the 2013 tax year comes to a close in December.
One complicated issue facing dental practices is what entity choice to make to save on taxes, as well as prevent liability from reaching personal assets in case of malpractice or business lawsuits not covered by insurance. The two issues are interrelated, and every practice situation is different, depending on how many owners there are, how the owners contribute to capital, how the owners are paid, how many employees there are and how they are paid, what kinds of retirement plans the owner and employees want, what liability issues the owners want to insulate themselves from, what real estate is involved, and many other factors. No one size fits all, and choices such as an S Corporation, an LLC, a C corporation, a partnership, an LLP, a P.C. and a sole proprietorship are some of the alternatives. You really need to sit down with your attorney and accountant as a team to coordinate a plan for what entity structure will be best for your practice now and in the years to come.
Equipment purchasing is another primary consideration for dental practices which enters into the tax planning process every year. The tax code allows you to take advantage of completely expensing equipment if purchases are made before the end of 2013, or the five year depreciation method may be the option when considering long-term planning, financing, and/or present cash flow factors.
Dental offices which cater to special needs patients with their office design investments can benefit from avoiding liability for injuries taking place because of lack of accessibility or non-compliance with federal, state or local regulations, attracting new patients who appreciate consideration of their special needs, and especially the tax credits available for up to 50% of expenditures up to $10,000 in certain circumstances.
How you pay those who do work for your office enters into the tax picture on a daily basis because of the tempting possibility of paying those who do work for your practice as independent contractors to save on payroll taxes. The situation is very tricky when labeling part-time medical office employees as independent contractors, since depending on their education, the presence of direction of the practice concerning duties, and their ownership share of the business, the state or federal government is very harsh on those who try to save tax money by misclassifying practice workers. One caveat: don’t change the payment plan and start making different deductions for different types of workers from year to year, since that raises red flags which will prompt investigation. Thoroughly detailed agreements with independent contractors must make it clear that they are not employees and not under much direction and control of the dental practice.
Funding retirement plans always takes into account the tax implications, and the savings that can result in if done properly. Some plans had to be established by the end of October to qualify for 2013 tax treatment, while other plans can still be funded as late as the date your taxes are filed. Your accountant can help you both plan for the future and save you considerable tax money presently with the correct setup.