My name is Harsh Patel, and I am a CPA and the owner of HMP Consultants, a full-service accounting firm. We perform the whole nine yards between bookkeeping/keeping payroll, advisory services, income tax prep, tax estimates, tax planning, and more.
Overall, we have an extensive and successful history working with dental practice owners. While our firm originated to aid all general practitioners, we have now narrowed our scope of services to focus solely on dental practices. Throughout my years of experience, I have come to see the pleasure dentists obtain from keeping their patients happy, healthy, and smiling.
However, the same cannot be said once tax season comes around and dentists are expected to pay more than their fair share. If it sounds like I’m talking about you, it’s a good thing you’re reading this. With inflation skyrocketing, saving on your taxes is more important than ever. So, let’s get to it:
What are five ways you can save on taxes in 2023?
1. Choose the right business structure. Several of my new clients had no problem running top-of-the-line dental practices. They were performing great dental work, changing lives, and impacting many patients.
However, they had never received the appropriate guidance on building a sound, strong structure for their business. As a result, they ended up overpaying on taxes, having liability problems, and other backend issues. There are so many business structures to choose from, and that’s half of the battle. The right structure might come in the form of a local proprietorship, partnership, LLC, corporation, S-corp, DSOs—the list goes on.
While S-corp is one that my colleagues and I particularly advise, every situation is different. The point is, as you grow your practice, you cannot avoid this nuance. The right business structure will ensure you are on top of the numbers you need to monitor and remain on the right track.
2. Choose the right retirement plan. Everyone has unique needs when it comes to retiring and no two plans are the same. Furthermore, setting up retirement plans isn’t just about you—it can be a great way to increase retention and loyalty within your staff. My job revolves around advising, consulting, educating, and developing strategies to help clients reach their end goals— whether that means 401k plans, profit-sharing plans, etc.
For example, some dentists prefer to invest their savings directly back into their offices, so I help them implement certain strategies for that specific goal. Choosing the right plan ultimately depends on how your company is structured. While this may sound simple, it requires more than a cookie-cutter approach. No matter the industry, it is difficult to keep up with all the small moving parts that go into your retirement plan.
That’s why it’s best to work with experts who can keep up with all pieces of the puzzle that may otherwise be overlooked.
3. Have children? Make them practice owners. Giving your children ownership in your practice might sound a bit surprising, but it’s a great way to save on taxes. Not only that, but it also sets your children up for success in the future as you put them on payroll, give them administrative duties, and so on.
Of course, this strategy would not apply if your children are babies. But if they’re of age, you can hire them and assign them to marketing, business management, or other relevant roles. If they’re under 18 years old, you’ll save money on payroll and income taxes, while also receiving deductions on your business. You can then take those savings and reinvest that money into an IRA.
It’s a nice way to help your children earn some money, learn responsibilities, and start their retirement plans. If you’re going to be giving them an allowance anyway, why not help the business out?
4. Implement proactive tax planning. “Proactive tax planning” is an umbrella term for conducting accurate month-to-month financial reporting, running benchmarks against others within your industry (e.g., comparing your numbers to dentists in the region), measuring KPIs to see how far along you are on your set goals, and so on.
When you know where you stand in terms of taxation throughout the year, you can capitalize on savings. For example, if you want to purchase equipment before year-end and you’re not sure on whether you should do it in December or January of next year, you can take advantage of certain depreciation methods and find tax loopholes right before year-end. A common issue I see will occur when clients are doing their own financials, bookkeeping, etc. It takes them at least four months to catch up, and by the time they do, they don’t know what their tax situation will be at the end of the year. When the time rolls around, they end up vastly overpaying taxes. Sometimes dentists don’t even budget for these taxes and up being overwhelmed when they realize how much they owe.
5. Capitalize on a qualified business income deduction. Believe it or not, dentists can receive a 20% direct deduction on their business income. However, it is beneficial to work with a seasoned pro because there are certain requirements and income limits to this deduction.
My team and I work with clients to help them receive whatever they can get. It starts by reducing your taxable income and taking advantage of certain retirement deductions. Then, when your income level is down, you can apply this last-minute QBI deduction and receive an additional 20% of deductions.
Start Saving! I’m inspired by how dentists make their patients so much happier and truly impact their quality of lives. While I can’t make that same impact directly, I know I can pitch in by helping practice owners improve patient care through their top-of-the-line tax savings plans.
If you want more help, please reach out to my team and I over at HMP Consultants. Request a consultation for free at https://www.hmpconsultants.com/contact.php