Dental professionals are one of the most invaluable members of our healthcare system. They work tirelessly to provide essential dental care and treatments, ensuring the overall oral health of individuals and the community. Dental services are expensive, but so does the cost of running a dental practice. With many expenses to cover, from dental supplies and equipment, maintaining a dental license to paying taxes, a lot of dental professionals may need help putting up their dental practice. Fortunately, most of the expenses dentists incur in their dental practice are tax-deductible. This allows them to enjoy more of their hard-earned money. Whether you’re a seasoned dental practitioner or a newbie in your dental career, this comprehensive dentist tax deduction checklist will cover everything you need to know about maximizing your tax savings and achieving financial success as a dental professional.
Dentist Tax Deduction Checklist
Managing the financial aspects of your dental career can be overwhelming. However, taking advantage of the tax breaks is certainly a great way to save significant money on your taxes. With so many tax deductions available, you may need help keeping track of them all. To make it easy for you, we’ve created this dentist tax deduction checklist to ensure you don’t miss any chance to save on your taxes come tax season.
1. Start-up Costs
Startup costs are expenses you incurred or paid with launching a new business or acquiring an existing business. Feasibility studies, hiring and training your employees, advertising, legal, and accounting fees are some of the most common tax-deductible start-up costs.
The IRS allows you to write off up to $5,000 of your qualifying start-up costs, provided that you spent less than $50,000 on your business start-up costs. However, if your start-up expense exceeds $50,000, your first-year deduction reduces by $1 for every dollar you spend over $50,000. For example, if your total start-up cost for your dental clinic is $54,000, your deduction will be reduced by $4,000. Therefore, you’ll be able to write off only $1,000 in your first year.
It’s important to note that start-up cost deductions only apply if you actually opened the business. You are not eligible for this deduction if you did not launch your business.
2. Dental Equipment
Section 179 of the Tax Cuts and Jobs Act stipulates that taxpayers are allowed to deduct certain costs of tangible properties purchased and placed into business. If you put up a dental clinic and purchase equipment, such as dental chairs, X-ray machines, and air conditioning, you are eligible to write off the cost of these assets as business expenses. Note, though, that the equipment must be used for business at least 50% of the time.
For tax year 2022, the IRS allows taxpayers to deduct up to $1,080,000 in qualifying equipment and technology costs with a purchase limit of $2.7 million. Any expenses exceeding this amount will result in a reduction of dollar-for-dollar deduction.
3. Employee Salaries
Putting up your dental practice means you’ll likely need a team of staff to keep your business up and running. This may include hiring a dental assistant, front desk receptionist, and dental hygienist. Your employee salaries and benefits are a substantial cost of your business each year. The good news is you may also be able to get a big tax write-off for those costs.
4. Office Supplies
Like any other business, dentists have to buy standard office supplies such as paper, pens, ink cartridges, and other things they need to run their business. These expenses are 100 percent deductible if you incurred them in the current tax year.
In addition to standard office supplies, dentists can also claim tech equipment and work-related software used for business as a tax deduction. This includes computers, printers, scanners, and other office tools. Dentists can also claim depreciation on larger office equipment over time.
5. Retirement Plan
If you recently implemented or plan to offer your employees retirement plans, you may be qualified for the Retirement Plans Startup Costs Tax Credit. It lets you write off up to 50 percent, or $500, of the ordinary and necessary expenses associated with establishing a SEP, SIMPLE IRA, or qualified plan such as a 401(k) plan for the first three years.
Matching or contributing to your employees’ accounts also qualifies for a deduction. It enables you to contribute to your retirement savings plan and potentially reduce your taxable income using elective deferrals.
One of the largest expenses and most common tax write offs for dentists is rent. If you rent a place or equipment for your dental practice, you can write off your rental payments as a business expense. However, if you use a portion of your home as a principal place of your business, the rent paid on your home is deductible as home-office expenses.
7. Business Insurance
If you have a standard business insurance plan considered a necessary expense, you can claim it as a tax deduction. Some types of insurance that your dental office might have include business liability insurance, health, vision, dental insurance plans, and professional liability insurance.
8. Business Meals
The cost of business lunches and refreshments is often missed. Yet, these are also valuable tax deductions you can take advantage of in 2022.
As long as you meet specific requirements, you can deduct 50% of the entire expense of business meals. Among these requirements is being present throughout the meal and engaging in a business conversation with the accompanying individual, such as a customer, client, consultant, or employee. Meals with friends or former clients, during which no business was discussed, are not tax deductible.
9. Business Clothing
The IRS allows individuals and businesses to deduct uniforms and work clothes as business expenses. If you are an associate dentist or an employee, the cost and upkeep of your work clothing or uniform are deductible, provided your employer does not reimburse the cost.
On the other hand, if you’re a business owner, you can deduct business clothing only if you provide it to your employees or provide them with funds, such as a clothing allowance.
10. Legal and Professional Fees
Legal and professional fees are deductible so long as they are an ordinary and important part of running your business. These expenses cover hiring a lawyer, an accountant, and any other expert consultants you may decide to use.
11. Professional Dues
To practice in the medical profession, dentists must settle various professional dues and licensing fees, which are tax deductible. These expenses include but are not limited to medical license renewal, membership, and education costs.
And since dentists must stay updated on medical field developments to elevate the quality of their service, any expenses related to education, professional development, and even subscriptions to professional or technical publications are deductible.
Taking Advantage of Tax Deductions This Tax Season
Putting up your own dental practice can be highly expensive. As such, understanding the tax implications and taking advantage of the tax deductions available is critical to minimizing your tax burden and maximizing your financial resources.
If you need a reliable tax resolution partner, Tax Samaritan offers the best-in-class service. Tax Samaritan’s team of tax experts and enrolled agents can provide professional quality tax resolution services. We have been helping numerous expats and taxpayers with our tax services since 1997.