Time to Start
Your Tax Planning
These tips will show you how to reduce your taxes year after year.
Jerry Hayes, O.D.
The year is coming to an end and tax issues will soon become a priority for business-savvy
O.D.s. I recently spoke with Ken Hicks, a CPA who specializes in optometric issues, for ideas on how you can reduce taxes. Here are some of his suggestions.
It pays to incorporate
O.D.s who net $100,000 or more are usually better off filing as a subchapter S than as a sole proprietor. The cost to incorporate is a one-time legal fee of between $500 and $1,000, plus the annual accounting fees to file the corporate return plus your personal return. An
O.D. making $100,000 can save $5,000 to $6,000 each year in social security and payroll taxes, and more like $8,000 with a $200,000 net. Talk to your accountant about your amount of savings.
ILLUSTRATION BY ESTHER
Section 179 allows business owners to deduct up to $24,000 for equipment purchased this year, plus 30% for equipment purchased since September 11 and 10.5% more in first-year depreciation.
So if you buy $50,000 worth
of equipment, you can deduct $24,000 off the top ($50,000 -- $24,000 = $26,000) then 30% ($26,000 x .3 = $7,800), then 10.5% more -- which is $819) for a first-year deduction of $32,619. You can then depreciate anything more than that in future years.
Also, the Disability Access Credit Act allows a $5,000 tax credit on qualifying equipment used for the disabled. You need a letter from a reputable manufacturer stating that the equipment is eligible under the Americans with Disabilities Act of 1990 to qualify.
Considering a year-end purchase that exceeds the limits above? Take delivery that equals your maximum deduction in 2002, and have the balance delivered in 2003.
Learning more ways to save
The 529 plan allows you and a spouse to each prepay (after tax) up to 5 years of your $11,000 annual gift exclusion, ($110,000 for a couple), into a tax-deferred account. Certain state's residents are eligible for additional tax credits.
The educational IRA allows you to put aside up to $2,000 per year for beneficiaries under age 18. The growth and distributions are tax-free and you can use them for college, grade school, high school, tutoring, etc. But when the child turns 18, the money is his, which may affect financial aid for college.
Benefiting from Medicaid
If you're a Medicaid provider, see if you can participate in your state's employee non-qualified deferred compensation plan. If so, you don't have to pay federal, state or social security tax on income that's withheld. What's more, the contributions don't affect qualified plans such as IRAs and 401ks, and practice owners don't have to match funds for their employees.
Know when to hold
Use stock losses to your advantage. You can offset up to $3,000 in ordinary income when you sell losers, but hold your winners for at least one year to take advantage of long-term capital gains. Mutual fund capital gains are typically distributed at year end so buying or selling them at the wrong time can result in a tax bill you don't want.
With these tips and those from your accountant, you should see a reduction in your taxes this year and every year. Good luck!
THE SENIOR PARTNER OF A LARGE CPA FIRM, KEN HICKS WORKS WITH ODS ACROSS THE COUNTRY AND CAN BE REACHED AT (601) 619.2930 OR
Optometric Management, Issue: November 2002