Year-end tax strategies for your dental practice

November 13, 2017|Matthew Prentice

With the proposed changes from the current tax reform legislation, there are many deductions that may not be around come January 1, 2018. As the year quickly comes to an end, there is still time to consider year-end tax strategies that can help you save money under the current tax rules and regulations. Below are a few deductions and strategies that can help.

Did you purchase new equipment this year?

There are a couple different ways to speed up the expensing of your new equipment that can help lower your taxable income. First there is the Section 179 deduction. This deduction allows you to immediately expense up to $510,000 in the purchase of new or used equipment. Please note that if you purchased more than $2.03 million in equipment, the Section 179 expense is reduced dollar for dollar over the $2.03 million.

Another way to speed up expensing new equipment is to use bonus depreciation. For 2017, you can write off 50% of the equipment’s value and depreciate the remaining amount over the Modified Accelerated Cost Recovery System (MACRS) life of the asset. When taking bonus depreciation, you must use this method on all assets with the same class life that were put in place during the year. If you decide not to use bonus depreciation, make sure you elect out of taking bonus depreciation.

Did you purchase, construct or renovate an office building?

Consider having a cost segregation study performed. A cost segregation study will help reclassify the cost of the building to shorter depreciation class lives or even allow you to expense some costs immediately.

Did you contribute to your health savings account (HSA)?

With the increasing numbers of high deductible health insurance plans, an HSA is a great way to save tax-free money to use for medical expenses. For 2017, the maximum amount you can contribute to your HSA is $6,750 for family coverage and $3,400 for single coverage. That’s tax-free money to spend on medical payments!

Before contributing to an HSA, check to make sure you’re in a high deductible health insurance plan, that you’re not on Medicare and you’re not claimed as a dependent on another person’s return.

Maximize your retirement accounts!

Are you deferring wages into a 401(k) plan? If possible, contribute as much as you can. The maximum amount you can defer to your 401(k) plan for 2017 is $18,000, with an extra $6,000 if you’re over the age of 50. That’s a lot of money you can put away each year!

What about your individual retirement account (IRA)? The maximum amount you can contribute for 2017 is $5,500 for anyone under the under the age of 50. Once you reach age 50, you can contribute another $1,000 for a total of $6,500. Contributing to an IRA will avoid the 3.8% investment tax on your earnings!

You may want to talk to your tax advisor to see if you should be doing Roth deferrals or pretax deferrals as we can see if you can save additional money for retirement using “backdoor” Roth conversion.

You may also want to see if it makes sense to change the type of retirement plan you have. Are you using a savings incentive match plan for employees (SIMPLE) IRA plan and should instead look into a safe harbor 401(k)? Does it make sense to have a cross-tested plan or even to look at installing a cash balance defined benefit plan? These are all great questions to ask.

Considering a donation to a charitable organization?

Think about donating property, such as stocks or land, instead of just cash. The deduction you receive on your tax return is the fair market value of the property donated and you won’t be taxed on the gain. This means that if you have appreciated property and you’re thinking of getting rid of it, this would be a great way to get a tax deduction. In order for your charitable donation of cash or property to be tax deductible, make sure you are donating to a 501(c)(3) organization.

Planning on sending your children to college?

Consider contributing to a 529 plan. A 529 plan is set up as a tax savings plan because the earnings on the amounts contributed are tax-free as long as the distributions are used for qualified educational expenses. Depending on the state you live in, you may receive a tax benefit if you contribute to that state’s 529 plan. For example, in Wisconsin, if you contribute to Wisconsin’s 529 plans (Tomorrow’s Scholar or EdVest) you can receive a deduction on your Wisconsin tax return. For 2017, the deduction would be a maximum of $3,140 and any contribution above that in 2017 would carry over to the following years.

Can you convert nondeductible interest you are paying into deductible interest?

Look at interest you are paying on student loans or personal loans and determine if it makes sense to pay them off with available cash, using a home equity loan to pay off or consolidating as part of a home mortgage refinance to take advantage of home mortgage interest rates that are deductible. Discuss with your financial or tax advisors to see if this makes sense for you.

For assistance looking at your tax strategy, contact the Dental Advisory Group at Schenck, or call Matthew Prentice, CPA, at 920-996-1217.

Matthew Prentice, CPA, is an accountant with the Health Services team at Schenck. With nearly five years of experience, he specializes in providing tax, financial reporting and assurance services for health care organizations.

Tags: Dentists, Tax