Dental Tax Tips #4: Most Common Expenses for a New Business Owner and Associates

Generally, under Federal tax law, a trade or business expense will not qualify for a deduction unless you are able to substantiate it. This usually includes some form of documentary evidence (receipts, checks, or bills). In order to substantiate one’s expense, one should possess proof of the amount of the payment and provide evidence establishing the character of the expense. This generally, could be completed by providing a written statement of the business purpose of the expense. Proof of payment could include a check clearance (if the statement also indicates a check number, the amount of the check, the date posted to the account, and the name of the payee), an electronic funds transfer, or a credit card charge.

The best practice for new business owners and associates is to make sure to keep good records and track everything for substantiation for the following expenses. It is also very important to also make sure every expense is run through a business credit card or business banking account (not personal). All expenses must be ordinary, necessary, reasonable, and directly related to a business purpose. Tracking all expenses is great to see how your business is actually doing, helps you prepare an accurate tax return, and provides documentation if you or your business is ever audited by the IRS. 

Check out our suggestions for apps and softwares that will help track business expenses.
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The Most Common Expenses for a Dental Practice Owner

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1. Advertising – This includes public relations, business promotion, business cards and stationery expenses.
2. Auto Expense – Tracking and claiming this expense can be complex. Check this resource for more information.
3. Bank Service Charges – This includes all bank fees and fees for safe deposit boxes.
4. Charitable Contributions – Taxpayers can receive substantial tax benefits for charitable gifts and the mileage driven to participate in the charitable events.
5. Contract Labor & Wages – This includes associates and employees.
6. Depreciation Expense – Substantial purchases with a useful life of longer than a year should be set up to be depreciated (depreciation expenses the piece of equipment over its useful life – usually several years).
7. Dues and Subscriptions – This deduction includes subscriptions to professional journals, magazines, newspapers, newsletters or books, cable television and dues to professional associations such as dues for joining a trade associations (chamber of commerce or other groups) – taxpayers cannot deduct dues to a private club, ie. social clubs, athletic clubs, country clubs.
8. Education Expenses – This expense can include trade shows, conventions, and seminars if required by law or your employer to maintain or improve your skills (continuing education).
9. Employee Benefits & Retirement Plans – For you and any employees. 
10. Business Gifts – If you give gifts in the course of your trade or business, you can deduct all or part of the cost of the gift. You can deduct no more than $25 for business gifts you give directly or indirectly to each person each year. The taxpayer should retain documentation supporting the gift’s cost and the description, the date it was acquired, the business purpose of the gift, and the business relationship to the taxpayer of the person receiving the gift.
11. Insurance – Business insurance, rent insurance, equipment coverage insurance, property insurance, liability coverage, medical, dental, and health insurance (for yourself, your spouse, and dependents). Life insurance gets complicated. You may not deduct the cost of premiums for life insurance where you, the business owner, are directly or indirectly the beneficiary. This includes policies you take out on yourself to secure a loan for your business. You may not deduct the cost of life insurance premiums paid on behalf of an employee or any person who has a financial interest in the business if the business is the beneficiary of the policy. You can deduct life insurance premiums if the insurance is provided as a benefit for employees and if the business is not the beneficiary of the policy. The premiums on group term life insurance covering the lives of employees are deductible by the employer if the employer is not a direct or indirect beneficiary as long as the death benefit is less than $50,000. The payment of any premiums for policies where the death benefit exceeds $50,000 will represent income to the employee.
12. Home Office Deduction – There are certain requirements to meet here. Check this resource for more information. 
13. Interest Expense – Payments for interest expense related to equipment, real estate and business credit cards. Please work with your CPA periodically to adjust loan balances and interest expense. Loan documents, closing statements, and credit card statements will help get to a deductible amount for interest expense.
14. Legal & Professional Fees – Counsel, accounting, consultants’ fees, and legal advice are deductible.
15. Office Furniture – Desks, chairs, lamps, filing cabinets, couches, plants, computers, printers – some of these items might need to be depreciated over their useful life.
16. Postage & Mailing – FedEx, UPS, USPS and other delivery services (messenger or courier services) are deductible.
17. Hiring/Recruiting Expenses – Expenses to hire and recruit employees, associates, and any other staff are deductible.
18. Rent – Rent payments for property used in the operation of the business (vehicles, machinery and equipment), may be able to deduct lease payments for business equipment, any amount paid to terminate a lease early. 
19. Repairs & Maintenance – This includes any upkeep to your equipment and can include parts and labor as long as the repair does not become an improvement – improvements will most likely need to be depreciated.
20. Start-Up Expenses – The first $5,000 of costs of launching your business or acquiring a new business (before the business is actually open) can be deducted, anything over that will need to be amortized over 15 years.
21. Supplies – Paper clips, legal pads, pens, toner cartridges, file folders, cleaning supplies, coffee, bottled water, etc. are deductible.
22. Taxes & Licenses – Payroll, property taxes, sales tax, real estate tax, city, county or state business taxes or incorporation fees, business licenses, professional licenses, trade association dues, and franchise fees. The deductibility and amounts of the deduction for taxes is highly dependent on which state you reside in. Also, you may want to coordinate with your CPA to see which tax filing will need to be filed, when they will be due, and who will file the filings.
23. Business Travel – This can be a complex tax deduction. Check this resource for more information. 
24. Local Travel – Taxi, tolls, parking, train or bus fare – keep track in a datebook and keep receipts. 
25. Meals & Entertainment – This can be a complex deduction. Check this resource for more information. ‍
26. Utilities & Communication – Electricity, heat, water, trash pickup, internet, email services, fax, and telephone (should track business and personal use). For telephone use, you can deduct the amount of time you use your cell phone for business. If you legitimately use your cell phone for 40 percent business, then you should be able to claim 40 percent of the bill as a deduction. You may want to periodically request an itemized phone bill to make sure you are deducting the proper amount. The IRS scrutinizes telephone usage very carefully to make sure personal utilities and phones are being claimed properly as business or personal use.

Things That Are Never Deductible 

1. Government imposed fines (but you can write off the expenses of fighting the fines)
2. Bribes 
3. Kickbacks 
4. Political contributions 
5. Federal income tax

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The Most Common Expenses for a Dental Associate

1. Auto Expense – Tracking and claiming this expense can be complex. Check this resource for more information.
2. Bank Service Charges – This includes all bank fees and fees for safe deposit boxes.
3. Charitable Contributions – Taxpayers can receive substantial tax benefits for charitable gifts and the mileage driven to participate in the charitable events.
4. Depreciation Expense – Substantial purchases with a useful life of longer than a year should be set up to be depreciated (depreciation expenses the piece of equipment over its useful life – usually several years).
5. Dues and Subscriptions – This deduction includes subscriptions to professional journals, magazines, newspapers, newsletters or books, cable television and dues to professional associations such as dues for joining a trade associations (chamber of commerce or other groups) – taxpayers cannot deduct dues to a private club, ie. social clubs, athletic clubs, country clubs.
6. Education Expenses – This expense can include trade shows, conventions, and seminars if required by law or your employer to maintain or improve your skills (continuing education).
7. Business Gifts – If you give gifts in the course of your trade or business, you can deduct all or part of the cost of the gift. You can deduct no more than $25 for business gifts you give directly or indirectly to each person each year. The taxpayer should retain documentation supporting the gift’s cost and the description, the date it was acquired, the business purpose of the gift, and the business relationship to the taxpayer of the person receiving the gift.
8. Insurance – Business insurance, rent insurance, equipment coverage insurance, property insurance, liability coverage, medical, dental, and health insurance (for yourself, your spouse, and dependents). See Life Insurance Premiums above.
9. Home Office Deduction – There are certain requirements to meet here. Check this resource for more information. 
10. Legal & Professional Fees – Counsel, accounting, consultants’ fees, and legal advice are deductible.
11. Postage & Mailing – FedEx, UPS, USPS and other delivery services (messenger or courier services) are deductible.
12. Supplies – Paper clips, legal pads, pens, toner cartridges, file folders, cleaning supplies, coffee, bottled water, etc. are deductible.
13. Taxes & Licenses – Payroll, property taxes, sales tax, real estate tax, city, county or state business taxes or incorporation fees, business licenses, professional licenses, trade association dues, and franchise fees. The deductibility and amounts of the deduction for taxes is highly dependent on which state you reside in. Also, you may want to coordinate with your CPA to see which tax filing will need to be filed, when they will be due, and who will file the filings.
14. Business Travel – This can be a complex tax deduction. Check this resource for more information. ‍
15. Meals & Entertainment – This can be a complex deduction. Check this resource for more information.