With the end of 2013 right around the corner, you are probably already thinking about what 2014 will bring. Planning for the new year is very important for your dental practice, but you need to focus now on tax saving strategies for your 2013 tax return.
There are tax saving strategies that can benefit you if you are proactive and act before it’s too late. The following are 10 items for your immediate consideration:
- Leave more profit in your dental practice. This enables you to take advantage of Ohio’s new Ohio tax credit on business income passed through to you on your individual tax return. You can reduce your taxable income by 50 percent of your business profit up to $250,000. Depending on your tax bracket, this credit could save you up to $6,000 in cash.
- Purchase a new asset for your dental practice. Thinking about new equipment for your dental practice? Take advantage of favorable depreciation laws by making a purchase before year end. You can take a 50 percent bonus depreciation and up to $500,000 of Section 179 depreciation. With Section 179, you can take the full deduction in year one of the asset purchase as long as the item purchased is new and not used. Things will change in 2014 though. The law currently states that bonus depreciation will be eliminated and Section 179 limits will be reduced to $25,000. There is a chance that these laws may be updated, but don’t risk it if there is a piece of equipment that you will need in the next few months.
- Adjust your rental rates. Do you own the building that your dental practice operates in? If so, consider reducing the rent charged to the practice to avoid some of the new 3.8 percent Medicare tax on investment income.
- Perform a cost segregation study on your dental practice. Have you recently upgraded or expanded a substantial portion of your dental practice? Better yet, have you recent built a new office? If so, a cost segregation study may be appropriate to help accelerate your depreciation deductions.
- Understand the benefits of an IRA. Consider funding a traditional IRA and rolling it over to a Roth IRA for tax-free growth. This is a great strategy for dentists with high incomes who cannot otherwise fund deductible IRA’s. Be careful if you have existing IRA balances though, as the conversion may not be completely tax free.
- Fully fund your 401(k). If your plan allows it, be sure to fully fund your 401(k) this year. Your taxable income is reduced by the amount you defer into your plan. The 2013 contribution limit is $17,500 or $23,000 if you are 50-years-old or over.
- Pay for your tax estimates now. If you do not expect to pay alternative minimum tax in 2013, be sure to pre-pay all fourth quarter state and local tax estimates. Although these are not due until January, you get a 2013 tax benefit by paying these in December.
- Maximize your Health Savings Account (HSA) contribution. Not only do you get a tax deduction for money put into the plan, but the earnings in the account grow tax free and you can take the money out tax free as long as it is used for qualified medical expenses. The limit for family plans is $6,450 and for individuals it is $3,250.
- Take advantage of the Domestic Production Activities Deduction. If you manufacture dental devices, you may be eligible for the domestic production activities deduction, which is a 9 percent deduction of the revenue less expenses of the related activity. Be sure to track direct and indirect costs related to the manufacturing process including wages.
- Keep it in the family. Employ your spouse and/or children if you have work they can do. Your spouse may then be able to fund a retirement plan and your children can then fund a Roth IRA, which would grow tax free for a substantial amount of time.
In all the excitement that comes with a new year, don’t forget to take advantage of tax planning opportunities. Your dental practice and pocket will benefit from it!
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