Four Ways to Save Big on
If you dread tax time, then follow these
steps for an easier time next year.
Jerry Hayes, O.D.
We work hard in these columns, in our lectures
and in personal consulting to teach you how to improve practice efficiency and
production so you can increase your true net income. But there's a little catch
to that: The more profitable you are, the more you have to pay in income taxes.
Fortunately, you can save on your 2004 return if
you act before December 31, 2004. How? Just read the following four pointers.
If you earn more than $100,000 this year and are
currently filing your tax return as a proprietorship or C. Corporation, then Ken
Hicks, C.P.A., recommends that you convert to an S. Corporation. Why?
An S. Corp will allow you to better control the
amount of payroll taxes you pay on your own salary. Let's say that you're
unincorporated and net $100,000 after all expenses and deductions. An
unincorporated optometrist will pay approximately $22,000 in federal income tax
and another $12,000 in payroll tax. But an O.D. in an S. Corp can elect to pay
himself a smaller salary, say $60,000, and take $40,000 in a non-payroll
distribution. You'll still owe income tax on the entire $100,000, but because
you don't have to pay payroll taxes on the $40,000 distribution, you can save
approximately $4,500 in taxes.
Pay those bills
Pay all of your supply and maintenance bills
before the end of the year, even if you're tight on cash and have to borrow the
money. Doing so allows you to deduct those expenses in 2004. The tax savings
will more than offset your interest costs.
3. Buy new equipment now
Under section 179 of the tax code, you can deduct
up to $102,000 in equipment purchases made in 2004. Plus, this year carries with
it a 50% bonus depreciation. But you'll want to take advantage of this
depreciation soon because it expires on December 31, 2005.
4. Get compliant
The Americans with Disabilities Act (ADA)
provides that businesses must grant disabled individuals full and equal access
to their goods, services and facilities. Although compliance is mandatory, you
do get a tax credit if you have to spend money on approved new equipment or on
office modifications to meet ADA standards.
The credit is equal to 50% of the qualified
expenditures that are more than $250, not to exceed $10,250 for a maximum credit
of $5,000. (If you spent $8,250, the credit would equal [$8,250 � $250] x 50% =
$4,000.) This is a credit against your tax bill, which is much better than a
Typical ADA-type expenses include sign language
interpreters, special printed materials or audio formats, the purchase or
modification of special equipment or devices such as wheelchair accessible
instruments and the removal or modification of physical barriers such as steps
or inclines. Note: For a practice to be eligible, it must have gross receipts of
less than $1 million.
Save with good tax planning
Can good planning really help you save money on
your taxes? Absolutely! But it takes two things:
1. Action on your part
2. A C.P.A. who's knowledgeable regarding the ins
and outs of tax laws that apply specifically to optometrists.
KEN HICKS, C.P.A., DOES TAX WORK FOR
OPTOMETRISTS IN 23 STATES AND SERVED AS THE RESOURCE FOR THIS COLUMN. YOU CAN
REACH HIM AT KHICKS@MAYCPA.COM OR AT
A frequent writer and speaker on practice
management issues, Dr. Hayes is the founder and director of Hayes Consulting.
You can reach him at (800) 588-9636 or JHAYES@HAYESCONSULTING.NET.
Optometric Management, Issue: November 2004