GENERATIONAL DENTAL WEALTH PODCAST S2 | EP. 33 | BLOG POST

How to Tax Plan as a Dentist

dentist doing dental work on a patient

Tax planning is essential for any business, but it becomes even more critical for dentists who operate their own practices. Taxes are often the largest expense, taking up to 35% of your income. However, with strategic planning, you can significantly reduce your tax liability and keep more of your hard-earned money. Here’s how to do it.

Understand the Impact of Taxes on Your Wealth

Taxes are the biggest inhibitor to building wealth. If you’re not careful, a large portion of your income will go straight to the government. On average, dentists spend about 35% of their working lives paying taxes. This “silent partnership” with the IRS can either hinder or accelerate your financial growth, depending on how you manage it.

Leverage the Augusta Rule

The Augusta Rule allows you to rent out your home to your business for up to 14 days per year without having to report the rental income. For example, if you charge your practice $1,000 per day for 14 days, that’s $14,000 in tax-free income. Your business can deduct this as a business expense, reducing its taxable income.

Embracing Diversity and Inclusion

Dr. Octavia’s experiences as a minority woman in dentistry shed light on the importance of diversity and inclusion. Dentistry thrives when it embraces individuals from diverse backgrounds and perspectives. Creating an inclusive environment fosters innovation, empathy, and cultural competence within the dental community.

Maximize the Home Office Deduction

If you have a dedicated space in your home for business use, you can claim a home office deduction. There are two methods to do this:

  • Simplified Method: $5 per square foot, up to 300 square feet, giving you a maximum deduction of $1,500.
  • Actual Expenses Method: Deduct a percentage of your home expenses (utilities, rent, maintenance, etc.) based on the size of your home office relative to your entire home. For example, if your home office is 20% of your home’s total square footage, you can deduct 20% of your home expenses.

Hire Your Children

If you have children, you can put them on your practice’s payroll. You can pay them up to $14,600 per year without them owing any taxes, thanks to the standard deduction. This expense is fully deductible by your business. To make this strategy effective:

  • Ensure the work is legitimate and age-appropriate.
  • Have clear job descriptions like Junior Admin, Cleaning Helper, or Social Media Coordinator.
  • Consider opening a custodial IRA for them, contributing up to $7,000 per year. This money can grow tax-free, and they can use it for qualified expenses, like buying their first home, without penalties.

Let’s continue to learn from inspiring dental professionals like Dr. Octavia Miller and work towards a brighter and more inclusive future for the dental profession.

Create a Comprehensive Tax Plan

The key to effective tax planning is not just preparing your taxes but strategically managing them throughout the year. Work with a CPA or tax strategist who understands the dental industry. They can help you project your tax liability and implement strategies before the end of the tax year to reduce your taxes.

By applying these strategies, you can significantly reduce your tax burden and use those savings to build generational wealth. Always consult with your financial advisor or CPA to tailor these strategies to your specific situation. With the right planning, you can keep more of what you earn and secure your financial future.

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“The Generational Dental Wealth Podcast” is your go-to resource for dental professionals and entrepreneurs looking to build, sustain, and transfer wealth across generations. Hosted by industry experts, this podcast delves into financial strategies, business growth, and legacy planning, all tailored to the unique needs of the dental community. Whether you’re a seasoned dentist or just starting out, each episode offers actionable insights to help you secure a prosperous future for yourself and your family.

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