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Seven Tips for Tax Season

Sometime between the holidays, when patients are into all the wrong foods, and tick season, when those little critters are most active and we’re all focused on preventives, comes tax season. It’s the time of year to gather the materials necessary to prepare your tax return and to think about finding ways to cut down on your tax bill for 2015.

Here are 7 tax strategies you can consider to help keep as much money in your pocket, or your business, as possible.

  1. Compensation Packages If you are a veterinarian negotiating your compensation package, take advantage of benefits that you would otherwise have to pay for but which are considered nontaxable if paid for by your employer. These items include dues, licenses, health insurance and continuing education as well as professional liability insurance. If these are paid for individually, they are tax-deductible as itemized deductions subject to a limitation of 2% of your adjusted gross income. In most cases for an employee, this means no deduction at all. If paid for by your employer, you still get the benefit but with no tax obligation to you.
  2. Equipment Acquisitions If you own your practice, there are tax benefits to reinvesting in your business through equipment acquisitions that help you provide the best patient care and improve client experiences. Consider the tax incentives of accelerated depreciation through the IRS code section 179 deduction. For 2015, the deduction is $25,000.
  3. Student Loans Are you still working through mounds of student debt? If you’re single and your income is below $80,000, or below $160,000 on a joint tax return, don’t forget your student loan interest deduction of up to $2,500. And make sure you take tuition credits for college education, including courses related to graduate studies. There are income limitations related to these credits, but tax credits are worth much more than tax deductions.
  4. Pet Health Insurance Coverage If you work in a practice that provides your health insurance coverage, the premiums paid by your employer are not considered your income. But if your employer buys you a pet insurance policy, the cost of that policy will be taxed to you. Unfortunately, there is no provision in the IRS code that allows practices to offer this benefit to you tax-free.
  5. Free or Reduced Veterinary Care If your practice offers employees free or reduced veterinary care, they can offer no more than a 20% discount without it becoming taxable income for you. In other words, if your practice offers you a 50% discount on services, 30% of the discount will be taxable income for you.
  6. Retirement Plan Contributions and Rollovers The most important deduction on your tax return is your retirement plan contribution. There is nothing more important than saving for retirement and no better way to do it than through your employer-provided retirement plan. If you employer does not have one, then an IRA contribution can be equally important.

    Don’t think that you have to put a lot away.  A good rule of thumb is 10% of your gross income. The big advantage is based on the theory that you are in higher tax brackets during your working years and lower tax brackets in your retirement years. So, if you put $1,000 away while working and you are in a 25% tax bracket, you get a $250 tax deduction. If, during your retirement years, you take that same $1,000 back when you are in a 15% tax bracket, you will only repay $150 in taxes. The $100 tax savings between what you put the money away at and what you had to pay when you took it back is your true savings that helps add to the retirement pot. Over many years of savings, this can really add up. If you participate in your employer’s plan, contribute at least up to an amount that provides you a full employer match. This is free retirement savings money from your employer. The typical employer match is 3% of your wage. Don’t waste the contribution.

    If you change jobs, consider alternatives before cashing out retirement plans at your previous employer. Consider a rollover into your new employer plan or a rollover to an individual retirement account (IRA). Distributions made before you are 59 ½ will be subject to a 10% penalty.
  7. Independent Contractor Status If you are an independent contractor, you may qualify for many business deductions. These include a retirement contribution to your own plan without limitations, auto expenses incurred traveling from your home to your work location and a home office deduction. But be careful: qualifying for independent contractor status can be difficult and challenging. If you are a traveling specialist, there is usually no issue. However, if you are a general veterinarian providing the same services as those that work in the hospital on a regular basis, your work would have to be sporadic and paid at something other than an hourly rate. If you work at the same hospital on a regular basis, say, two afternoons a week but every week for an entire year, the government will most likely want to treat you as a part-time employee. You do not get to choose how you would like to be treated. The decision is based upon a facts-and-circumstances test and should be discussed with a tax professional before considering.

The next tax-saving move is yours. Always seek the assistance of a tax professional who can guide you in making the decisions that are best for you.

Mr. Glassman has a business relationship with IDEXX and receives compensation from IDEXX from time to time. The views express in this post are solely those of Mr. Glassman. This information is for general reference only and is not intended to be tax advice. Please contact your accountant or tax advisor to discuss IRS Section 179 and to receive complete details on current regulations, limitations and guidelines as they may apply to you.

Gary Glassman, CPA

Gary Glassman, CPA

Gary Glassman has been a practicing CPA since 1976, and is a partner of Burzenski & Company, P.C. Mr. Glassman focuses on the field of veterinary practice management and specializes in financial management and tax planning for veterinary practices and their owners. He regularly speaks at national veterinary conferences on financial and tax topics and serves on the editorial board of Veterinary Economics magazine, to which he contributes regular articles.

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