What is worse than paying taxes? Easy. Paying taxes that aren’t necessary!
This article outlines six ways you might be able to save on taxes in your private practice business. It might surprise you what tax breaks you have been missing out on–so let’s find them.
I think we can all agree that the ultimate goal in life is to pay the minimum possible amount of taxes. Who’s with me?
Selecting the right entity for your business:
How do you know if you selected the right entity for your business? Have a conversation with your accountant to get a good idea of what entity fits your current needs. Keep in mind that your business is a living, breathing entity. As it evolves, your entity should evolve as well. Choosing the best entity for your business will allow you to save on taxes on fundamentals.
Home office deduction:
Do you have a dedicated work office in your home? If so, you can deduct a portion of your utilities, homeowners insurance, security, and general maintenance with the home office deduction! If you’ve heard that a home office deduction is a red flag for an IRS audit, don’t worry–that’s just a myth. You should take the deduction if you have a legitimate home office!
Mileage:
If you do have a home office where you handle the administrative side of things, the gas mileage from your home office to the office where you see clients becomes deductible. Nice! Easy money! Just make sure you’re tracking mileage with a log or an app like QuickBooks Online or MileIQ. Using an app makes tracking simple, and there’s nothing like well-kept records to keep the IRS happy. In case you’re curious: the federal mileage rate for 2020 is $0.575/mile.
Retirement:
Saving for retirement sounds like a lot of work, but it isn’t. Most payroll companies have some kind of retirement plan! And guess what? Contributing to a retirement plan isn’t just good for your future, it’s good for your taxes right now. If you contribute to a tax deferred plan you don’t pay taxes until you take the money out after age 59.5. The funds grow tax-free until then! There are lots of choices out there: 401k, Roth 401k, IRA, Roth IRA, SEP, SIMPLE so talk to your accountant or a financial advisor about the best choice for your business.
Health care:
Ready for a little known fact? Sole proprietors can pay for and deduct insurance premiums on their 1040 as self-employed health insurance deduction. There are some limitations, but it’s surprising how often this is missed! If you have an S-corp, shareholders (that’s you) can either be reimbursed for health insurance premiums or can be covered for business health insurance directly. In either case it’s a business deduction! There’s no way to lose there.
Hiring children - If you are brave enough to hire your own children (family business, anyone?), you can pay them up to $12,000/year without incurring any tax. They can help with shredding paper, social media, marketing, cleaning, whatever makes sense in your business. Be sure to document the work with timesheets, a job description, and reasonable compensation. ($50/hour for dusting your office? They wish.) Basically, it needs to look and operate as a legitimate job. You deposit the cash into your kids bank account, then the child can use the money for their expenses like private school, gas money, new electronics, etc. This generally works well with kids who are at least 8-9 years old. This shifts funds from a higher tax bracket (yours) to a low/0% tax bracket (your kids). Keep in mind that this system won’t work with all legal entities, so discuss your options with your tax preparer.
The better you understand your business entity and structure the more tax breaks you can discover. It’s all even easier with a financial professional to guide you through the process. If you already have an accountant, ask them how you can catch a tax break this year! If you are single and looking, GreenOak Accounting is known for helping save money for therapy practices all over the nation.
This article is designed to provide information only and should not be considered legal or tax advice. Because of the complexity of the law and the variables in your own personal tax situation, you can’t rely on our advice specifically related to your unique circumstances. In order to get the best tax savings and legal advice available to you, you should consult with your own accountant, attorney or advisor regarding your particular facts and circumstances. GreenOak Accounting is an accounting firm that specializes in working with counselors and therapists in private practice. We provide monthly accounting & bookkeeping services, 1-time services and online courses. For more information on our specialized services for therapists please visit https://www.greenoakaccounting.com/our-specialized-services-for-therap