Tax Estimates vs Reality: Why Your Practice's Tax Bill Feels Like a Root Canal

We're tackling a hot topic in the dental community: tax estimates—what they mean for new and established practices, why they can be shocking, and how to manage them effectively.

Understanding the Tax Shock

Imagine buying your first dental practice. The excitement is palpable until your first tax estimate blindsides you. It's a common scenario for new practice owners, but rest assured, with the right guidance, you can navigate these choppy waters. This blog is tailored towards newer practice owners, but there are nuggets of wisdom for established practices too.

Why Tax Estimates Can Surprise

New practice owners often face a financial plot twist when their first tax estimate arrives. This shock can happen for various reasons, depending on your practice type:

1. Startup Practices: With the potential for substantial write-offs like equipment and leasehold improvements, startup practices might underestimate their tax liabilities.
2. Acquired Practices: Typically more predictable, acquisitions might not offer the same level of initial losses as startups, impacting tax estimates differently.
3. Established Practices Facing Changes: Growth or major investments can push these practices into higher tax brackets, altering their tax landscape significantly.
4. Static Established Practices: Even without significant changes, incremental growth can move practices to higher tax brackets over time.

Managing Your Tax Estimate and Strategy

Understanding the difference between tax estimates and projections is key. Tax estimates involve calculating expected payments, whereas projections focus on long-term financial planning and decision-making. Employing effective tax strategies can help mitigate unexpected tax burdens.

What Are Tax Strategies?

Tax strategies are legal methods to reduce your liability, not through fraudulent means but by optimizing your approach using the tax code to your advantage. At Tooth and Coin, we specialize in identifying average tax savings of $60,000 to $70,000 for established practices, equating to substantial savings over the years.

Beware of Red Flags

Not all tax strategies are equal. Be cautious of:

• Strategies that sound too good to be true.
• Advisors pushing "secret" strategies.
• Professionals recommending investments as tax strategies without due diligence.

Finding the Right Tax Professional

In the quest to find a reliable tax advisor, prioritize:

1. Social Proof: Referrals from fellow dentists are essential.
2. Credentials: Seek professionals with CPA licenses, EA, or tax attorney credentials.
3. Experience with Dentists: Ensure they understand your industry specifically.
4. Willingness to Sign Tax Returns: This signifies their accountability.
5. No Investment Pushing: Prioritize sound financial investments over potential tax benefits.

Approaches to Tax Planning

Different firms have varying approaches to tax planning:

• No Planning: Some firms offer no proactive strategies, relying solely on tax return preparation.
• End-of-Year Scramble: Often involves last-minute advice that can lead to unnecessary spending on equipment or investments.
• Top Three Category Planning: Advising on a few major strategies, which can limit comprehensive savings.
• Comprehensive Analysis: Our approach at Tooth and Coin involves a detailed evaluation of every client annually, offering multiple opportunities for tax reduction.

Concluding Thoughts

In this post, we've explored the intricacies of tax estimates, differences between estimates and projections, various types of practice owners, red flags, and how to find the right tax professional. Tax planning is a crucial aspect of running a successful dental practice, so ensure you're working with someone who understands your unique industry needs.

‍

If you find a tax strategy that seems too good to be true, it probably is. Trust in a reliable tax professional who supports your practice as thoroughly as a favorite dental assistant supports your patient care. For personalized guidance or to learn more about optimizing your tax strategy, visit Tooth and Coin's website for a consultation.

‍