Tax preparation is vital for all professions, but it's especially critical for doctors and those within the medical industry who earn more than $200,000 per annum. Receiving a sizeable income every year, doctors and medical practices are more likely to accrue a hefty tax liability over the course of a year that can still sneak up on the best of us. If you're unprepared, it may become a time-consuming—and even costly—addition to the checklist of your already hectic schedule.
The earlier you prepare your medical practices' taxes, the less you'll have to worry about when the deadlines finally arrive.
Now is the time for you to assess and streamline your tax filing processes, taking advantage of these best tax saving strategies that all medical practices and physicians can utilize for better saving records:
Deduct 100% of Building Improvements
As a rule of thumb, you should always make sure that you’re utilizing depreciation deduction for real property improvements for your medical practice instead of piling up suspended losses in real estate LLCs. Make sure to record leasehold improvements at the operating entity level (medical practice or ASC) and take advantage of a full deduction without passive activity limitation.
This is because most physicians with private practices own the buildings where they run their medical practices and surgery centers. As most of these buildings incur some capital expenditure every year, accounting for these deductions can allow for quite a significant improvement every year.
Utilize the Augusta Rule Loophole
Since the Augusta Rule allows homeowners to rent their homes for up to 14 days a year without needing to report that specific timeframe’s rental income on your individual tax return, you can consider renting your home—whether its your primary, secondary, or even vacation home—for business meetings to meet this requirement.
Likewise, it is important to research rental market peaks each year in your area and quote market rent to ensure that you’re getting the most out of your 14 days under the Augusta Rule. Done properly, this rent deduction can be taken on the medical practice’s tax return without tax implications to its owners.
Put Your Own Kids on Payroll
As long as they’re doing legitimate work for your business, you can hire your kids and pay each of them up to $12,000 per year tax-free without having to go through hoops or conducting shady business practices.
Some things you could have your children involved with include cleaning the office area or using their pictures and/or videos on your medical practice's website.
By making sure their salary is within the $12,000 limit, your children won’t even have to file a tax return and pay any income tax on it. It will also lower your medical practice’s taxable income when you deduct their wages.
This strategy can be combined with IRA and 401k strategies to really maximize the benefit. For instance, if you paid each child $12,000 each as salary, you could put $6,000 into an IRA that is deductible and use their standard deduction to take their taxable income to zero. Through that, your medical practice can deduct $18,000 per child without having to worry about taxable income.
Utilize Expenses Not Claimed on Business Partnership Tax Returns
Something that most of us don’t think twice about, plenty of us often use our personal car, computer equipment, internet, cell phone, and other similar expenses to run our business. Likewise, these expenditures are often not reimbursed or claimed by your medical practice business.
You may be allowed to deduct unreimbursed ordinary and necessary expenses you have paid on behalf of the partnership (which includes qualified expenses for the business use of your home) if you were required to pay these expenses under the partnership agreement and they are trade or business expenses under IRC section 162.
CPA Solutions is here to assist physicians like yourself become successful and profitable by offering consulting, accounting, and taxation services that are tailored to meet your medical practice's unique requirements. If you’re looking for more practical advice on how to handle your medical practice’s taxes, you can make an appointment with us today to set up a free 30-minute consultation to check in on your business’ financial health and needs.