Dental practices are ideal candidates for paid tax preparers to offer their expertise. Several tax rules are beneficial to dentists, particularly those who establish new businesses. They might not know about special matters affecting their tax returns. Fortunately, a tax preparer training course provides all the information needed.
Tax practitioners can easily locate dentists with new practices by using industry associations and state licensing agencies. These groups for dentists are eager to help their members effectively launch new dental businesses. For example, vendors of dental equipment and supplies find new sales opportunities from professional listings. Tax preparers can follow the same path to inform dentists about ways that tax preparation services can reduce the after-tax cost of equipment purchases.
The tax laws affecting how to deduct the cost of equipment are constantly changing. Other issues known by tax professionals are identification of typical business expense deductions for dentists. All of the tax rules applicable to a dental practice are covered in tax preparer courses.
Particularly important to a new dental practice are changes to Section 179 and depreciation expense. A profitable business should utilize Section 179 first and then use bonus depreciation. The limit for Section 179 is $500,000 for purchases placed in service before then end of 2011. For 2012, the limit drops to $125,000. An important rule from tax preparer education is that a Section 179 deduction phases out dollar for dollar when applied to equipment with a total cost in excess of $2,000,000. That phase out ceiling changes back to $500,000 in 2012.
Bonus depreciation of 100 percent is available for assets in service during 2011, but it applies to new equipment only. That might create just the right tax advantage for a startup dentist having purchased new dental chairs, x-ray machines, computers, and software. These costs are generally considerable. Therefore, the tax preparer work for a new dentistry practice with $800,000 of capital expenditures could use $500,000 of Section 179 deduction and fully depreciate the remaining $300,000 in the first year. Again, this assumes the practice has sufficient profit to use Section 179. Otherwise, bonus depreciation is available for everything as long as it is new.
Tax practitioners should explain the circumstances to new dental businesses. The benefit from a write off of the entire cost in the year of purchase depends upon the dentist’s marginal tax rate. Taking depreciation over several years is more beneficial for dentists who expect greater income in future years that pushes them into higher tax brackets.
Depreciable items include several categories that are commonly overlooked by operators of new businesses. For instance, a tax professional knows that depreciation applies to telephone systems and security alarm systems. After separating those items, the next step for accurate tax returns of dentists is capturing all the expense categories, including costs paid out-of-pocket by the business owner when starting operation.
IRS Circular 230 Disclosure
Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.
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