What’s The Impact on Dental Practice Tax Planning?

So, it’s another presidential election year. The rhetoric is filling the airwaves, and the subjects most discussed are deficit and taxes. The Democrats want to let part of the Bush tax cuts expire and return to a 39% tax rate for earnings over $250,000. The Republicans want to extend the Bush tax cuts for everyone. Most economists acknowledge that spending is too high, but cutting spending alone will not reduce the deficit, suggesting that some additional tax dollars must be raised.

So, here we are with the Bush tax cuts ready to expire on January 1, 2013. What better time to consider some potential tax planning–before it’s too late. If the Bush tax cuts expire certain actions could be taken this year to mitigate the additional taxes many dentists might owe. If your income for 2013 is expected to be above $250,000, you will be paying the old tax rate of 39% on all income over the $250,000 threshold. Discussing your options with a Certified Financial Planner or CPA could save you significant additional taxes. What else can you do?

Section 179 Depreciation
Section 179 of the IRS Code provides a rapid depreciation of $125,000 (on equipment purchases in 2012).  This provision will be discontinued if the Bush tax cuts expire, and will revert to a five or seven year depreciation schedule in 2013. Also, if you did not take advantage of the Section 179 depreciation schedule in 2011 (which allowed for $250,000 of depreciation for equipment purchased in that year), you could amend your 2011 return to take advantage of that rapid depreciation and perhaps reduce your taxable income for that year. If you are considering significant capital equipment purchases, you may want to take advantage of the Section 179 rapid depreciation this year.

Cost Segregation Depreciation
Anyone having built or remodeled an office since 1997 could qualify for accelerated depreciation for certain building costs. In HCA v IRS, the court ruled that certain leasehold improvements specifically related to your profession could be depreciated over 5-7 years (instead of the normal 39½ years). Qualified leasehold improvements for a dental office would include plumbing (including nitrous or oxygen), special electrical or computer wiring into treatment rooms, special structural support (reinforced for lighting and radiography), tile flooring, lead shielding, etc. To qualify for this tax provision, a “Cost Segregation Study” must be made by a qualified person or firm, itemizing the specific costs to be depreciated.

These are just a couple of the options you may have available to keep your tax bill in check. We are not offering tax advice, but merely pointing out some of the areas where tax savings might be realized. We highly recommend contacting your accountant and/or your financial planner to discuss all of the available options for maximizing your personal and professional financial positioning–before the end of 2012.