Tax Planning for a Dental Practice
Dental practices typically engage in transactions that trigger a variety of tax consequences. For example, a dental practice may lease space to run an office or may purchase a building. Often, a dental practice is run by a sole proprietor, which means that the dentist's personal transactions may have tax implications as well. To maximize profits, careful tax planning should be considered.
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Office Space
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Typically, a dental practice owns an office building or rents space in which to operate the practice. A dental practice that owns an office building may be able to depreciate part of the cost of the building. Under Internal Revenue Service rules, depreciation can be spread out over 39 years, or, in some cases, 25 percent to 40 percent of the office can be depreciated over five, seven or 15 years.
Sale of Dental Practice
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Dental practices are bought and sold as dentists retire or move on to other work and new dentists enter the marketplace. Typically, a practice is sold as an asset and a personal goodwill sale. This allows the owner to pay capital gains taxes on the goodwill sale, which was 15 percent as of 2011, and pay ordinary income taxes on the asset sale, which can be up to 35 percent.
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Mileage Deductions
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The owner of a dental practice can deduct expenses related to driving two ways. If the dental practice owns a vehicle that is used exclusively for the business, the entire cost of using the vehicle can be taken as a deduction. If the owner of the practice has a vehicle that is used for personal use and business use, the mileage related to the business use may be taken as a deduction.
Estimated Tax Payments
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Sometimes, the owner of a dental practice is required to make quarterly payments for estimated taxes according to IRS rules. These payments should be carefully tracked to be sure that the proper amount of estimated taxes were paid over the course of a year. If payments of estimated taxes are not made when they are required by the IRS, the owner of the dental practice may have to pay penalties and interest to the IRS.
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References
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