Who wants to pay more taxes than they absolutely have to? We thoroughly study current tax law so our clients don’t miss any opportunities to reduce their tax burden.
Who wants to pay more taxes than they absolutely have to? I don’t know anyone and certainly not our clients. That’s why we thoroughly study current tax law so our clients don’t miss any opportunities to reduce their tax burden. The following are three tax-reducing tips that are often overlooked by dentists who own their practices.
- Optimizing Your Retirement Plan for Tax Purposes: The goal here is to move as much of your income into a tax-protected retirement plan as possible. We typically recommend a 401(k) plan with optional profit sharing which allows owners and key employees to maximize their tax savings with the least total expense to the employer. The optional profit-sharing is a flexible element that allows the business to add to retirement contributions, AFTER the tax year has ended and AFTER you’ve determined your profits for the year. If it’s a particularly good year, you can make a substantial profit-sharing contribution into retirement savings and reduce the taxable income for the business.
- Accelerating Depreciations on Business Property: If you own a building, a cost segregation study will enable you to shelter more taxable income from your real estate operations through accelerated depreciation deductions. An engineering firm conducts the study in which they segregate different components of the property into categories that can be depreciated over a shorter time period. Personal property, things like furniture, carpeting, and window treatments, is depreciated over a five-seven-year life. Land improvements, such as sidewalks or landscaping, is subject to a 15-year depreciation. The actual building is depreciated over 27 to 39 years, depending on the type of property. Getting a cost segregation study isn’t difficult to do and the tax benefits can be significant.
- If Family Members are Working for You – Pay Them: Among our clients, it’s pretty typical for kids to help out with the family business and paying them for their work provides you with tangible tax benefits. Whether they’re helping amp up your social media presence, providing administrative assistance, or janitorial services, having children as employees opens the door to several tax-reducing opportunities. For instance, children who work for their parents (sole-proprietorship, single-member LLC or a partnership where the only partners are the child’s parents) are not subject to FICA taxes (for children under 18) or FUTA taxes (for children under 21). Plus, their wage income may be entirely or partially offset by the child’s standard deduction of up to $12,200 (2019). Wages should be reasonable, and hours worked documented, but if your kids are already helping out, you might as well take the benefits you’re entitled to.
Tax season is around the corner. If you’d like to hear more about how Engage Advisors can help you keep more money in your own pocket, our tax and accounting professionals are at your service. Schedule a call with us today.