The end of 2024 is quickly approaching, and business owners are once again scrambling to put their companies in the best tax position and minimize tax surprises. The question we hear most often from our dental clients in the fourth quarter is, “How can I reduce my taxes and have enough cash to pay my taxes?” Here are some proactive tips to prepare for the 2025 tax season.
One: Maintain Records Using Accounting Software and Reconcile Your Bank and Credit Card Accounts
Your accounting software should prepare meaningful financial statements that allow you to make timely, necessary, and accurate business decisions for your practice.
Performing bank reconciliations ensures all transactions, including collections and expenses, which hit the bank and credit card accounts are included in the practice’s accounting software.
After you have completed the reconciliation process, review your financial statements within the accounting software for the following:
- Does revenue match collections in the dental software?
- Does cash on your balance sheet reconcile to your bank statement?
- Are all your loans and credit cards accounted for on your balance sheet?
Your accountant can assist with this process on a monthly or quarterly basis.
Two: Contribute to a Retirement Account
There is still time to contribute to a retirement account. While each practice owner has different goals for their practice and provides different benefits packages for their staff, a retirement plan can be a way for the practice to get a tax deduction and an opportunity for you and your employees to contribute to a retirement plan.
Your practice may be able to deduct retirement contributions in 2024, even if those contributions are not made until 2025, accelerating a tax deduction to the year before cash is paid to fund the retirement plan. There are a variety of plans available with various funding limitations.
Three: Purchase Equipment and Place In Service Before December 31st
If you know you need to replace equipment or you want to purchase new equipment to better serve your patients, time the purchase to maximize the potential tax benefits.
There are two ways to accelerate deductions for the cost of the equipment: IRC Section 179 and bonus depreciation.
For more information on Sec. 179 and bonus depreciation, see our article here.
Four: Complete a Cost Segregation Study
If you have completed a build-out of existing or brand-new space by December 31st, consider having a cost segregation study performed. A cost segregation study potentially allows you to deduct some of the build-out cost more quickly, freeing up more cash for your practice now by accelerating deductions for tax purposes.
Five: Manage Your Taxable Income
Wil your taxable income be close to $483,900 (married filing jointly) or $241,950 (single filers)? You may be able to take advantage of some or all of the IRC Section 199A deduction through tax planning strategies that reduce your taxable income to a qualifying level.
You can deduct up to 20% of your pass-through entity income on your return if you qualify.
Six: Take Advantage of the Pass-through Entity Tax (PTET)
It may be advantageous for your practice to file a Pass-through Entity Tax return to maximize the deduction allowed for taxes paid on your personal Federal tax return. If a PTET return is not filed, your state and local tax deduction will be limited to $10,000.
For more information on PTET, see our article here.
Contact Blue & Co.’s Dental Practice Team
Blue & Co.’s Dental Practice Team works with over 400 dental practices per year providing a variety of services to bring value to dentists by allowing them to focus on the clinical management of the practice. We prepare our dental clients throughout the year, to strategically plan for ways to reduce tax liability and have appropriate cash flow to pay tax bills. If you have any questions about how your dental practice can prepare for the 2025 tax season, reach out to a member of our Dental Practice Team below or your local Blue & Co. advisor.
Tabitha Tolliver, CPA, MAcc, Director
