7 tips for tax season
Most taxpayers don’t
need to spend too much time worrying about being audited by the
Internal Revenue Service. However, many dentists are both small
business owners and high wage earners, which means they may be more
likely to hear from the tax man.
In its latest annual report, the IRS says it sent more than two
million notices for math errors alone, so filers may want to carve
out a few minutes at the beginning of the year to make sure they
are making things easy for their accountant and reducing the risk
of an audit.
Here are seven tips for your consideration. Before diving in,
remember that you should consult a tax professional for any
specific questions or if you need personalized advice about how to
get ready for tax time:
Get organized to avoid mistakes. Start out by
pulling everything together. It’ll be much easier now than when
2018 is a distant memory in March. Double-check the accuracy of any
forms you’ve already filed (like Form 941), looking for typos and
math mistakes. Make sure to confirm the accuracy of EIN numbers,
social security numbers, and anything else the IRS might use to
identify you or your employees. And when you’re done, move all
your forms, invoices and receipts into the same place — whether
it’s online or a physical folder — so you’ll be ready for tax
time.
Document meals and travel expenses. There can
sometimes be a blurry line between business and personal expenses,
but this year you should take care to make the distinction as sharp
as possible. The Tax Cuts and Jobs Act of 2017 eliminated many
dentists’ ability to write off entertainment expenses, and it
reduced the deduction for most business meals to 50 percent. Be
prepared for the IRS to heavily scrutinize write-offs for these
types of expenses for 2018. That means keeping receipts and
creating expense reports will be more important than ever, and
moving personal expenses onto your books will be riskier.
Avoid excessive or underutilized deductions. Do
you have vehicle expenses, adoption credits or home office
deductions? Claiming excessive or unrealistic deductions
(especially when they’re disproportionate to your income or other
expenses claimed by members of the dental profession) can also
attract IRS attention. You’ll also want to make sure your
deductions are backed up by proper documentation.
Document large charitable donations. Charitable
donations are great for your community, and they can result in
significant tax deductions. However, if your donations seem too big
for your income bracket, the IRS is likely to take a closer look.
Keep good records of your charitable donations, and if you’re
going to claim non-cash deductions over $500, be sure you file a
Form 8283. Also, be careful about whether you classify charitable
donations as personal or business write-offs. There are a number of
limitations and special requirements for different types of
business entities.
Be prepared for W-2s and 1099s. You pay and
withhold taxes from your staff all year. In January, you’ll need
to provide all your hygienists, office managers and technicians
with the tax forms that form the basis of their own tax
filings.
Switch software providers. If you are
considering changing software providers, January is usually the
best time to switch. That means it’s worth taking some time to
think about any pain points you may have experienced and consider
what you really need from your accounting, payroll, benefits and
human resources tools. Switching at the beginning of the year will
simplify things when you plan for tax time next year because you
won’t have to pull together data and financials from two
different tools.
Get ready for ERISA compliance tests: Do you offer a
retirement plan? This isn’t exactly a tax tip, but
smaller practices sometimes run into compliance problems with
401(k)s and other retirement benefits. If one or two highly
compensated employees contribute a lot more than the rest of the
team, it’s quite likely your plan will fail one of several
nondiscrimination tests, so you may want to remind eligible
employees to participate.
When you take a few proactive steps to get your practice’s
finances in shape, tax season can wind up being the most wonderful
time of the year. Seriously! You’ll be free to do more of what
you enjoy (and spend less time going back and forth with your
accountant or the IRS).
And if you are subject to an audit, know that you’re one of
the 1.1 million Americans each year who’s in the same boat.
Things will work out. Start by reviewing this guidance from the IRS
to get a handle on common questions. Then consult with your
accountant to make sure that you’re calm, collected and
organized. You may also want to check to see if any of your other
service providers offer to help with tax problems. For example, our
company, OnPay, offers an error-free guarantee, which means we’ll
help deal with IRS notices if there are problems with your payroll
taxes.
This material is educational only and reflects the opinions of
the author. It is not meant to constitute legal or tax advice.
Always contact a qualified tax professional or other financial
legal advisor in your area for complete tax or legal advice.
This blog post, republished with permission, originally appeared
in the
winter 2019 issue of the ADA’s Dental Practice Success. It
was written by Mark McKee, president and chief operating officer
for OnPay, a small business payroll company endorsed by ADA Member
Advantage. His information is provided courtesy of OnPay. Learn
more about how OnPay helps dentists at onpay.com/ADA or call
1-877-328-6505.
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