Research has shown that most dental practitioners overpay in taxes, and the reason behind this seems to stem from their lack of proactive tax planning. By not appreciating, understanding and acting upon the myriad nuances of the tax law, dentists the country over are missing out on potential tax saving opportunities and jeopardising their financial futures.
How proactive tax planning can help dental practices:
Creating a personalized tax strategy with the overall goal of reducing the tax burden and then mplementing it throughout the year, is what proactive tax planning is all about, and when done correctly, it can pay significant dividends for dentists and their practices.
Since a clear understanding of the tax code is essential for effective tax planning, most business owners including dentists with their own practices, seek professional help and guidance from a qualified and experience tax preparer.
When should you begin to plan for your taxes?
Effective tax planning must be carried out throughout the year, as once the tax year is done and dusted, there is little that you can do to minimise your taxes. Accountants who typically work for dental practices are usually good at recording historical data, meaning that they collect the raw data from the practice once the tax year has ended, clean it up and put the right numbers in the right boxes on the right forms, and so on. Usually very efficient and knowledgeable in this field, this type of work is also known as ‘compliance work’.
The typical relationship between a dentist and their accountant:
When a dentist opens their own practice, they usually will have little cash flow and will search for the cheapest accountant to complete their tax returns. Keeping their practice out of financial trouble and on the right side of the law, is their primary goal at this stage.
However, as the practice grows, the cheaply hired accountant may struggle to help develop individualized tax saving strategies for their client, as they may lack the knowledge, skills and training to do so at this level. Unfortunately, this poor hiring decision from the outset, often ends up costing the dentist more money in taxes.
The importance of hiring a tax professional who specialises in dentistry:
Statistics show that nearly 75% of all dentists own small practices, and the process of them beginning to lose money to the government often starts before they buy their practice from a retired dentist or when they become associates or partners in a practice that they intend to purchase. Those involved in the sale transaction, such as brokers and attorneys, are experts at making the most out of situations like this. The brokers locate dental practices that are looking to be sold or partnered and then market them for suitable buyers. The attorneys then prepare the legal paperwork to ensure that their clients are protected during the transaction, but neither party are tax law experts and are often clueless as to the tax implications of such transitions. Sadly for the dentist, the purchase agreements are usually full of potentially costly tax errors, and both buyer and seller will see themselves being forced to pay out more in taxes than they would have done had they sought the advice and guidance of a qualified tax professional who specializes in dental practices.
To protect your dental practice from the ravages of paid professionals who are not experts in tax law, always seek help from those who have your tax interests in mind, and who can help you plan for your taxes throughout the year.