I’ve heard I should track every single expense. Is that true… does it REALLY matter?.
YES, it’s true and YES… it does matter (if you want to maximize the profitability of your dental practice!) Recording all deductible expenses is crucial for dental practices for several reasons.
- First, diligent expense documentation ensures accurate financial records, aiding in transparent accounting and budgeting. Comprehensive record-keeping helps track the practice’s financial health, enabling informed decision-making and strategic planning.
- Secondly, accurate deduction reporting maximizes tax benefits. Deductible expenses reduce taxable income, potentially leading to lower tax liabilities and freeing up resources for practice growth and investment. Properly documented expenses provide the necessary evidence during tax audits, ensuring compliance with tax regulations and minimizing the risk of penalties.
- And last, maintaining thorough records establishes credibility with financial institutions and potential business partners. A well-documented history of your practice’s deductible expenses showcases fiscal responsibility, fostering trust and enhancing the practice’s financial reputation.
Tax planning should be a year-round process. It’s so true. Your life will be a lot easier early next year when all your tax forms start rolling in. Forms like 1099s and W-2s do a lot of the tracking for you. You only need to transfer data over to your IRS tax forms and schedules. But what about the daily stuff, the expenses you incur as a part of your workday that no one else is documenting? There are a lot of tax-deductible costs that can really add up when it’s time to file.
Generally, what are (and aren’t) considered deductible business expenses?
The IRS has two criteria for evaluating the validity of business expenses. First, is it ordinary? Is it something that other companies in your trade or profession would commonly buy? Second, is it necessary? Is it “…helpful and appropriate?”
Warning: Some expenses that you think might be deductible are not. Obviously, you can’t claim the costs of personal items, but the IRS specifies two other types of expenses that can’t be deducted: Capital Expenses and those used to calculate the Cost of Goods Sold. Questions? Ask us.
Here are some examples of expenses that you might not consider, but which should be recorded as they are incurred so you don’t forget about them come tax time.
Advertising and promotion
Some of these expenses are obvious. For example, you might report printing costs for brochures, ad space bought, and postage for mailers and other business correspondence. But there’s much more that fits into this category. Think about everything you do that helps promote your business, like expenses related to:
- Business cards
- Team sponsorships
- Your website (including start-up and maintenance fees)
- Search Engine Optimization
- Graphic design
Business insurance premiums, like liability or malpractice premiums are deductible.
Postage and office supplies
Yes, they’re deductible if you need them for your practice.
Meals and travel
You’ll want to familiarize yourself with the rules for this one. They’re complicated, and the IRS looks closely at such deductions.
Business use of your home
If you have a home office, you may be able to take a tax deduction. As long as you completely separate your clinical duties from your managerial and administrative duties, dental practice owners are absolutely eligible to take the home office deduction. Just be careful. There are all kinds of regulations, restrictions, and exceptions here. Further, the home office deduction can be an audit red flag.
Professional and legal fees
If your practice pays an individual or firm for services provided to help you operate your business, those fees are often deductible. This includes lawyers, accountants, and tax preparers, of course, but as always, there are exceptions.
As you can see, there are many allowable business expenses that require detailed record keeping. While you can do this on paper or in a spreadsheet, we’d advise streamlining the process by using a cloud-based application specifically designed for this purpose. If you’re interested in checking these out, let us know. As a Greater Houston-based team focused exclusively on the needs of dental practices, we’re uniquely positioned to help your practice grow revenue and profitability!
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7 Key Financial Practices That Separate Thriving, Growing Practices From The Rest.
There’s no denying it. Creating a thriving practice is about much more than practicing medicine!
Topping the list of “other” priorities is your practice’s financial management. In this short guide, the experts at STAC Bizness Solutions outline 7 financial best practices that differentiate struggling practices from those which are highly profitable and experiencing healthy levels of growth.