You may not want to think about taxes yet, but a mid-year check-up could help your bottom line when April 15 finally rolls around.
Many taxpayers won’t take a close look at their 2016 tax obligations until March or even April 2017. And for most, that’s probably OK. For people whose tax situation hasn’t changed much and whose income is relatively steady, chances are pretty good that a tax withholding strategy that worked just fine for 2015 taxes will do the same for 2017 taxes.
For dentists, however, there are a few reasons to take a look under the hood at your income and what you’ve paid so far in taxes prior to the end of the year. Let’s take a look.
First and foremost, dentists are typically small business owners who are subjected to different kinds of taxes than most taxpayers. Second, dentists’ income may vary more widely than a typical public or corporate worker. This may mean a much higher or lower taxable income at the end of the year. This could be particularly important if you’re on the borderline between two tax brackets, either from just regular income or from income plus capital gains on real estate or other investments.
Third, if you’re a dentist who owns a practice or a partial stake in a practice, you constantly face difficult decisions around how much income to take out of the practice as income and how much to reinvest. Nearing a tax threshold, or needing to catch up on a tax liability, could influence some of those income-investment decisions for the remainder of 2016. Plus, investing in your future has obvious benefits besides lowering your tax liability. It’s nice to think ahead, prepare for changes, and be ahead of the curve in upgrading your practice.
Year-End Is Around the Corner
It may seem like we just said goodbye to summer, but the holiday decorations are already out! October is nearly the beginning of the holiday season, an undeniably busy time for many. This may be your last real opportunity to look at what you’ve set aside for taxes so far and adjust your withholdings accordingly.
Investing some of your income will create tax deductions that can lower your tax liability for 2016. You may also wish to consider making payments to vendors in 2016 even if the bills won’t come due until 2017, also as a way of lowering your taxable income. You might also think about delaying payments owed to you until 2017.
Talk to a tax professional about where you are and what strategies you might employ. This is a good idea for several reasons. The tax code can be tricky, and the language around capital gains, “taxable events,” and when you need to declare income earned are complicated. Also, you want to make sure you don’t inadvertently engage in any illegal activity or trigger a time-consuming and stress-inducing tax audit by having activity that
fishy, even if it’s not.
If you’re filing business taxes, don’t do it yourself!
This seems as good a time as any to remind you that if you’re relatively new either to the field of dentistry or ownership (in whole or in part) of a practice, there are many, many things to consider when filing your taxes. Depending on how your practice is structured (as an S-Corporation, partnership, or LLC), your returns may look quite different. Filing as any of these isn’t as simple as an individual tax filing. There are many forms and procedures you’ll need to follow. Non-compliance with tax law, including incorrect filings by simple mistake, can result in substantial penalties and interest. There are also state and Federal taxes to consider.
Work with a professional firm with a track record of working with dentists or similar businesses. Shopping around now will give you ample time to consider the history, trustworthiness, and overall merit of whatever professional or firm you’ve selected to work with you. And always keep in mind that you—and not the tax preparation firm—are responsible for any errors made on tax payments.
*This article is for informational purposes only and should not be considered tax or legal advice.