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As professionals in reducing the tax burden of dentists through legitimate means, Golden Tax Relief has had the opportunity of working with a diversity of dental professionals over the years. We have concluded that nearly 95% of them pay taxes in excess of what is needed by law because they do not take advantage of all of the opportunities provided by the U.S. tax code.
Luckily, tax overpayment is correctable. So here are…
The main reason dentists pay taxes they don’t have to pay is that they operate their practices under the wrong type of entity. When we analyze dentist’s tax returns and we almost always notice that they’re conducting their business under one entity, and it’s the wrong type of entity. Most successful practices need to be managed under more than one entity. One benefit of corporate structures is income shifting, a strategy that can legally lower taxes by reducing taxable business income.
Income shifting enables you to deduct much of the income from the “C” Corporation by using the tax code deductions guide. Accordingly, income shifting can help a dental professional save up to 15.3% in taxes over a sole proprietorship or partnership in which all income is subject to self-employment taxes.
Medical benefits constitute one of the most overlooked and underappreciated areas with regard to a smart tax strategy. By not using pre-tax dollars to pay for medical expenses, you risk a larger tax bill, and you lower business profits by not maximizing deductible business expenses. Sole proprietorships offer fewer options than corporate structures to most effectively integrating medical benefits into your tax plan.
If you operate as a sole proprietor, you can’t establish a plan. If your business is taxed as a corporation, you qualify as your own employee, whereby you can legally enjoy medical benefits and tax savings not available to sole proprietors or partnerships.
Retirement plans are vehicles for building financial security and maintaining lifelong living standards. Choosing the most effective retirement plan starts with a budget.
Given the number of retirement plans, how do you determine which plan is best for you? Dental professionals should consider profit-sharing plans that provide more flexibility in annual contributions.
How do you maintain a minimum amount of taxable income, yet maximize the retirement plan contribution? With a defined benefit plan, you don’t face the $51,000 or $56,500 contribution limits. Instead, you face a limit only on the funding of the monthly retirement income you can provide to yourself when you start receiving your retirement benefits.
Taking advantage of the IRS-sanctioned tax strategy of employing your children can provide payroll tax deductions for hiring family members while helping your children earn money for college or other expenses. Under IRS rules, children under age 21 are not required to pay unemployment taxes, and children under 18 don’t pay payroll taxes, Social Security, Medicare, or unemployment taxes. Your kids also do not pay FICA or Medicare taxes on their wages. You can benefit from this rule if you operate as an LLC or sole proprietorship. If you operate as an “S” Corporation or a “C” Corporation, you can create tax savings by hiring your child, just not nearly as much. For wages paid to a spouse or parent, you don’t pay unemployment taxes.
However, wages are subject to FICA and Medicare taxes.
LLCs can take advantage of family tax breaks, just as if you were a sole proprietor. If you operate a husband- and wife-owned LLC and both spouses have membership in the LLC, you likely have a partnership.
Saving on taxes starts with a forward-looking tax strategy. Unlike tax preparation, tax planning helps you take strategic actions during active tax years. There are provisions in the laws that allow dentists to structure their financial affairs in such a way that their tax liability is minimized.
At Golden Tax Relief, we want to help you save the most when it comes to your taxes. Employing these 5 hidden tax opportunities can help you save money on your taxes.
Want more clever dental marketing strategies tips and tricks? BOOK A CONSULT NOW to see how Golden Tax Relief can take your practice to the next level.
“I must evaluate your personal tax situation, and then create a custom plan exclusively for you. There is NO one size fits all when it comes to tax planning. I personally went 12 years without getting so much as a checkup. When I finally did go, while not as bad as I thought, there was still significant work to done. Your finances and taxes are the same. How long have you gone without an income tax checkup?”