Why Tax Planning is So Important for Dental Businesses
Tax planning is critical for dental businesses wanting to mitigate their liabilities and risks. It is especially the case when you consider nearly all business transactions are taxed. As you go about tax planning, it is imperative to know and be current with all tax law changes in effect and understand how they could impact your dental practice.
Unfortunately, too many business owners don’t do tax planning, or they put it off until the last minute, greatly limiting the options to take advantage of when it comes to filing their tax returns.
Simply put, when you go through the tax planning process, your dental business is better positioned to forecast what your tax liabilities are in advance. It makes it possible to develop strategies designed to reduce your future tax bill.
When you develop a thorough tax plan, it is possible to pay less in taxes or receive a more substantial refund at the end of the year. While it’s impossible to avoid paying some taxes, there are ways to reduce your tax burden and come up with more money at the end of the year. Tax planning can even give you the advantage of making it easier to boost your business finances and increase your discretionary income.
What is Tax Planning?
Tax planning is essentially the art of arranging your affairs in ways to delay or avoid taxes. By using effective tax planning strategies, your dental business might have more money to save and invest or more money to spend.
Tax planning allows your dental business to achieve its financial objectives and prepare for upcoming needs. Tax planning has the potential to lower taxable income, decrease tax rates, give you more control of when your taxes are paid, as well as optimize deductions, credits, and other strategies. By having a tax plan, it helps your dental practice to minimize tax liabilities and ensure available allowances, deductions, exclusions and exemptions are working in unison in the most tax-efficient manner. Proper tax planning also helps to prevent surprises when tax season arrives.
Tax planning is always important to operating your dental business and with all the COVID-19 ramifications, including its impact on the economy, in addition to the federal income tax rules being more complicated in recent years, tax planning is more critical now than it has ever been.
Think of it this way. Tax planning gives your dental practice the option of deferring or even avoiding certain taxes by leveraging helpful tax-law provisions, increasing and expediting tax deductions and tax credits, and optimizing all the relevant breaks available under the highly complex Internal Revenue Code.
As a point of clarification, make sure you also know the distinction between tax planning and tax preparation. When you file your taxes, it simply involves preparing your tax return and sending it to the IRS by April 15 (usually) in the correct and proper manner. Tax planning is about ensuring you pay your responsible share of taxes and absolutely no more.
What is at stake in not including tax planning in your tax routine every year? It can be costly not to engage in tax planning! A General Accountability Office study completed over some years found that 2.2 million taxpayers who filed by taking the standard deduction overpaid their taxes by nearly $1 billion. In our decades of years experience, we regularly help clients save thousands, and in some cases, hundreds of thousands of dollars by employing tax planning.
Benefits of Tax Planning
As briefly touched on earlier, here are some of the main benefits of tax planning:
- Maximization of tax benefits or available tax credits
- Reduction of payable tax by deduction of expenses from earned income
- Loss of greater control over when taxes are paid
Additionally, tax planning is important and relevant for dental businesses is it allows you to accomplish the following:
- Develop your tax reduction strategies ahead of tax season. This approach can allow you time to take advantage of tax benefits for your dental business.
- You can identify and take advantage of the latest tax laws advantageous to your dental business for the tax year you are filing for.
- You can find ways to pay less in taxes overall.
A Chance to Plan for Retirement
Formulating a well-thought-out tax plan can put you in a better position for retirement. Nowadays, with a volatile economy and a mercurial stock market, it can be very challenging to save for retirement. Fortunately, various retirement savings options make it possible to set money aside without paying taxes on that income. After the money is designated to a separate account, it can accrue value based on interest or investments. The good news is you will not have to pay taxes on those set-aside funds until you withdraw the money from your retirement account.
Although you can’t completely avoid paying taxes on these accounts, deferring payment enables you to maximize your savings and reduce the amount of taxes that inevitably need to be paid. Other qualifying accounts regarding tax implications include Health Savings Accounts, where taxes only apply to the income remaining after HSA funds are removed. Another example is Dependent Care Savings Accounts.
Deciding Between Itemized or Standard
You have the option, when you file taxes, to choose between taking the standard deduction provided to all tax filers or creating a custom deduction by listing your expenses for the year. Both of these options can lead to more savings, based on your financial situation. Meaning you will need to evaluate how your financial situation has changed during the past year. When you incorporate all of these steps into your tax plan, it makes the tax preparation process much easier and provides opportunities to save more of your hard-earned money.
Clean Energy Could Lead to Tax Savings
A sometimes overlooked benefit of tax planning is the availability of green tax credit programs funded by the U.S. government. These programs provide advantages to businesses using alternative forms of energy for their heating or cooling systems.
What it comes down to is advanced tax planning gives you adequate time to examine past tax returns, anticipated changes in tax code, expected income or expense changes, and identify opportunities to decrease your tax obligations in the future. Consider the many ways your dental practice could benefit from this new-found money!
Choose Drilldown Solution for Your Dental Business Tax Planning Needs!
At Drilldown Solution, we are your one-stop-shop for all financial management and business consulting for your dental practice. When you partner with Drilldown Solution, you gain access to the exceptional accountants and CPAs who can give you expert guidance and advice on all tax planning issues.
Drilldown Solution offers a full suite of financial services that includes bookkeeping, accounting, and tax preparation. We have the expert team to help any dental business thrive, even under the current COVID-19 pandemic circumstances. We accomplish this with a three-part system comprised of patient-experience excellence, financial focused operations, and accountability.
Our goal at Drilldown Solution is to put your dental business in the best financial position possible, utilizing proactive processes and personal care!