Mike Bark and Meagan Rutkowski give you details, tips and some ideas you maybe haven't thought about when it comes to your taxes and being a professional service provider. Visit http://www.bullmoosefinancial.com for more information.
Today on the Cornerman Podcast we're talking about everyone's favorite subject - taxes! As we move into the end of the year, we wanted to give you some planning tips and ideas you should be thinking about when it comes to your's and your dentistry's taxes. We're talking deductibles, tax code, levels of taxation and much more!
Overview of the tax code
Most people will complain about the level of taxation that they have to pay, but what a lot of people don't realize is that we tax income and not wealth in the United States. Because of having an income tax, and not a wealth tax, you end up paying a lot of taxes if you're making a lot of money. A second thing that people don't realize is that there are some biases in the tax code. Some industries have it easier than others. The tax code doesn't necessarily discourage you from professional services - a dentist, doctor, financial advisor - but there are some biases. An example of that would be the qualified business income tax deduction that says a business can deduct up to 20% of its profits in any year. For a professional service provider, once you and a spouse's income breaks $315,000, that deduction gets phased out. Also, some industries like manufacturing or construction have inventory and percentage of completion to drive profits up or down allowing them a little bit of manipulation. In the professional service industry, we collect bills as we invoice them and we pay our expenses as we have them, so there's not much we can do to manipulate our income.
Choose your entity wisely
The first thing is the choice of entity you are. Most people think that they need to be an S corporation - they heard it from an older dentist or are a part of a study club where someone was saying that. That's all fine and good, except that the law changed two years ago. The biggest change in the law is the 20% qualified business deduction. If you're a business where you are going to make less than $315,000 in a year, you are probably better off being an LLC versus an S corporation because that 20% income tax deduction will outweigh some of the tax benefits that an S corporation gets.
Automobile deductions
I believe every tax return should have some type of automobile or vehicle expense on it. The most common decision somebody has to make is between mileage and actual costs of the vehicles. With a smaller vehicle, you'll be able to recoup that cost a lot more quickly than you could in the past. The basic rule for owning a vehicle within your business and having it be a tax deduction is it has to be used for more than 50% of business use. In some respects, it could be a hard hurdle for a single office, dentist or doctor to be able to clear because that commute is not going to be deductible. Essentially what you need to do is make an effort in logging your mileage. When people get audited, they take a few months from your google calendar or something like that and see if you're using your car for work purposes.
Health Savings Account (HSA)
An HSA is available to people that are covered under high deductible health plans, which seems to be the way even the corporate world is going right now. So if you are under a high deductible health plan, in 2021 you can put in up to $3,600 if you're single per year. A family plan would be up to $7,200 per year. That's a deduction above adjusted gross income (AGI) so it's going to reduce your taxable income. Then you can use that money for any qualified medical expenses incurred during the year after the plan has been established. The other way to use that is to save that money and pay your medical expenses with other out of pocket cash. Then that balance is going to grow, it's going to give you a tax deduction every year and it'll be available for when you're older and have expensive medical. So I've heard financial planners suggest that before as another way to defer taxes if you're in a high-income situation.
Listen to the episode for more tax tips and further details!
Talk about how to minimize your taxes with Bull Moose by visiting http://www.bullmoosefinancial.com or calling (414) 759-9629 today.
