Tax Strategies for Dentists in 2019

As we move into 2019, we approach what may be the most stressful time for dental firm owners — tax time. For many of the dentists we meet, taxes are their highest annual expenditure. Dentists often have budgets and plans in place for other high-expenditure costs, such as employees, supplies and laboratory costs, but no plan in place to address taxes. This approach is not efficient or effective.  

Income taxes don’t have to be stressful, but they do require that you plan and work with the right team. My firm has found that dentists can save over 30 percent on taxes by incorporating and implementing tax planning. Tax planning is an ongoing process that should be started early in the calendar year and monitored throughout the year to realize the best results. Tax planning also should be coordinated with your cash flow budget and business development goals. If done right, tax planning assists you with meeting your financial and growth objectives.

Here are some planning tips to consider as we move into 2019. Please note that these tips should be evaluated in relation to your personal circumstances and financial planning goals and with the review and advice of a qualified tax-focused professional.

1. Address entity selection for your business. Under the Tax Cuts and Jobs Act of 2017, businesses can receive a deduction up to 20 percent of their profit, subject to certain limitations. The problem for dentists is that this deduction is restricted if your taxable income after deductions is above $325,000. The entity selection that worked for 2018 may not be the best for 2019 and future years. You may not want to combine multiple lines of business, such as manufacturing of dental appliances and practice of dentistry, under one entity.  
2. Review your retirement options. We find many dentists are frustrated by the funding caps imposed by traditional SIMPLE IRA and 401(k) plans. Depending on your employee mix and structure, expanded retirement options are available and should be explored.  
3. Consider other savings vehicles. Retirement vehicles are not the only savings vehicles available. Depending on your business and its operations, other savings vehicles may be available where you can have access to funds saved in the plan. The suitability of these vehicles depends on personal circumstances and may not be effective for some dentists.  
4. Determine when to plan for equipment purchases. Under the new tax law, there is an expanded opportunity to deduct up to 100 percent of certain equipment purchases under Section 179. We encourage our dentists to work with us to decide when these purchases should be made and use effective tax planning to help subsidize equipment purchases or even avoid the need for financing. This involves planning in advance rather than deciding to buy equipment in November.
5. Learn other ways to reduce taxes. Your tax advisor should review available deductions with you to see if any exclusions or other opportunities exist. Your advisor should also consider your itemized deductions and other avenues to reduce taxes or lower your taxable income to qualify for deductions and credits otherwise not available to you.

Ultimately, tax planning needs to be coordinated with your growth and financial planning goals. The ideal advisor is a firm that practices tax planning but also understands the business of dentistry.

Peter Freuler, CPA, operates Peter Freuler & Associates, an Orlando-based accounting firm that specializes in helping dental practices. To comment on this article, email impact@agd.org.