By Justin Pothoven, CPA, Client Advisor
The American Dental Association reports that taxpayers overpay by nearly a billion dollars each year because they don’t take advantage of all the deductions and tax credits they are entitled to. As high-earners, dentists are especially vulnerable.
Let’s look at one area where dentists might be missing out on deductions – costs associated with fulfilling continuing education (CE) requirements. Here’s a run-down on what you can and can’t deduct.
Class-Related Expenses
If you are required to maintain or upgrade your current dental qualification, you are eligible to deduct the costs of state-mandated CE programs, tuition, books, and supplies.
Deducting Travel
In general, if the primary purpose of a trip is for business, you should be able to deduct the costs, and traveling for CE definitely qualifies. There are certain rules to follow, especially if you plan to leverage your business travel for a vacation.
Traveling By Car
If you drive and plan to deduct your travel expenses, you are expected to take a direct route. For example, if you were to drive from Cleveland, OH to Raleigh, NC, you would not be able to deduct the costs of driving to Disney World in Orlando, FL since it’s not on the way. Any side trips like that would count as personal days and are not deductible. But for the direct route, vehicle expenses and other costs of living on the road such as expenses for meals and lodging, are deductible. You can choose to combine business and pleasure, but you can only deduct the business portion.
Traveling by Plane
You can deduct all of your airfare for business travel, even if you choose to fly first class or even charter a flight. All options are deductible, and no special rules apply to commercial air travel. You simply deduct the cost of getting to your business destination by a reasonably direct route. As with driving a car, side trips are not deductible.
Lodging, Meals & Entertainment
Hotel and Airbnb expenses are 100% deductible for business travel. Meal expenses incurred while traveling for business are 50% deductible. Entertainment, however, is not deductible. For example, if you have an opportunity to attend a professional sports event such as a baseball game, you can’t deduct the cost of the tickets, but if you eat dinner in the ballpark, you could deduct 50% of your meal.
Incidentals
Transportation costs incurred at your destinations such as car rental, Uber, cab fare or subway fees are deductible. Depending on the length of your stay, you may need to pay for laundry or dry cleaning services. If you do, its deductible.
If Your Family Travels with You
It’s fine to bring your family on a business trip but be aware that doing so might make it look more like a vacation than a business trip, so be sure to keep good records. That means you need to sort expenses and limit deductions to what you would have paid for just yourself versus your family. For example, if you stay at a hotel and the single rate is $225 a night, while the two-person rate is $325, you can only deduct what you would have paid for a single rate – i.e. $225. When dining, your own meals are deductible, but meals for family members are non-deductible. If you travel by car, it won’t any cost extra if you bring your family along so it won’t change your deduction, but plane tickets purchased for your family are not deductible.
Keep Good Records
Good documentation is critical and can’t be emphasized enough. These days, one of the easiest ways to keep good records is to use your smartphone to take a photo of the receipt. Include a short note about the business purpose then file it immediately. At the end of each business meal, if you can develop the habit of capturing this information you’ll find it so much easier than trying to track down receipts two years from now when you might be facing an audit.
Plan ahead
The best way to maximize your deductions is to plan ahead. If you know your family is going to come along on a trip, then make a point to split out expenses in advance. Use your business credit card to purchase your plane ticket and use a personal credit card to buy tickets for the family. Do the same with meals. Too often all the expenses get jumbled together which can lead to hours spent trying to sort them, and calls into question the true business purpose of the trip. When that happens, it’s easier to miss out on deductions.
Consult a Dental CPA
To be sure you take advantage of all the deductions you’re entitled to, contact Engage Advisors. Our team of dental CPAs is up to date on current tax law, so you won’t miss any of the opportunities to reduce your tax liability. We’ll help you implement the right tax-saving strategies for your business and work with you to create a plan that minimizes your obligations so you can build a financially healthy practice.