5 Tax Saving Tips for Dentists – Keep More Of Your Hard-Earned Cash
As the saying goes, nothing is certain in life except death and taxes. And as a dentist, you’re probably wondering how you can reduce your tax bill. You need to pay your fair share, of course. But why pay more when you don’t have to? There are lots of strategies that dentists can use to reduce their tax bills. In this blog from Tooth & Coin, we’ll take a look at our 5 best tax saving tips for dentists.
1. Choose The Right Corporate Structure
As we’ve previously written about in a blog post comparing S Corps and C Corps, it’s important to choose the right business structure for your practice. Usually, an S Corp will provide you with a lower tax liability, since they are not subject to “double taxation.”
In addition, you can deduct any losses from the S Corp directly against your personal income. Owners of S Corps may also be able to shield some income from taxation by splitting it between family members through gifts, sales of stock, and other strategies. An accountant can help you learn more about these strategies, and how to save the most on your tax bill.
2. Choose The Right Retirement Plan & Max It Out
Depending on the details of your practice, there may be a lot of different retirement plans you can set up and use. This includes 401(k)s, defined benefit plans, SEP-IRAs (self-employed IRAs), and SIMPLE IRAs. The right structure and plan depends on your financial goals, income, and other such factors.
But once you have a retirement plan set up, do your best to max it out every year. The more you pay into your retirement plan, the less you’ll pay in taxes. You’ll also set yourself up for a financially-secure retirement.
3. Consider Opening A Medical Expense Reimbursement Plan (MERP)
A MERP is not available to sole proprietors, but is a good option for other types of corporate structures. Basically, this is a plan that lets you reimburse yourself and/or your employees for 100% of out-of-pocket medical expenses, tax-free. With careful use, you can pay 100% of your medical expenses with pre-tax dollars.
MERPS are available with group health insurance. They’re particularly popular with HDHP (High Deductible Health Plan) insurance plans, since these tend to have higher out-of-pocket costs. An extra advantage of choosing an HDHP plan is that it allows you to open an HSA (Health Savings Account), where you can stash even more money tax-free.
4. Think About Hiring Your Kids
If you’ve got older kids in high school or college, you may be able to employ them at your office and take advantage of some tax deductions. Under IRS rules:
- Children under the age of 21 don’t have to pay unemployment taxes or FICA taxes
- Children under the age of 18 also don’t have to pay payroll taxes, Social Security, or Medicare taxes
By hiring your kids, you can transfer some wealth, help them save up for college and other expenses, and take advantage of tax breaks, too!
5. Can’t Hire Your Kids? Open Up 529 Plans To Save For Education Expenses
If you have younger kids who can’t work for you, they can still help you save on taxes! You should open up a 529 plan for each of your kids. This is a special tax-deductible investment account that lets you save money on taxes and save for future education expenses.
The details about how 529 plans work vary from state to state, but they have very high contribution limits, and you can benefit from big tax breaks depending on the income taxes and regulations in your area.
Explore These Strategies And More With The Help Of Tooth & Coin
At Tooth & Coin, our team of dental accountants is always here to help you save on taxes and optimize your finances. If you think you’re overpaying on your yearly tax bill, you’re probably right! And with our help, you can find the right strategies to cut your taxes and keep more of your hard-earned money. Contact us online to schedule a consultation with Jonathan VanHorn now, and get the help you need.