2022 Tax Reduction Tips for Dentists
Tax season is right around the corner, but that’s no reason to panic.
Taking advantage of the tax planning season will reduce your income taxes in 2022 and beyond, with these Tax Reduction Tips for Dentists!
We’re currently in the middle of the tax planning season, which is the perfect time to get out your books. Starting your planning now allows you to adjust your spending and structure early. That way you can maximize tax deductions for dentists that you can qualify for.
In this article, you’ll learn 10 ways to save during this year’s tax season through dental deductions and credits so you keep more of your hard-earned money.
The Time Is Now: Make the Most of Tax Planning
Tax planning begins months before taxes are due. Creating a tax plan enables you to strategically disperse and spend money throughout the year to qualify you for the maximum number of credits and deductions.
The purpose of creating a tax plan is to strategically disperse and spend money throughout the year so you can qualify for the maximum number of credits and deductions.
Unfortunately, if you wait till tax season to consider your credits and deductions, you wouldn’t have much power over what you qualify for since the time has already passed for dispersing funds.
For tax deductions for dentists, the best time to make a tax plan is the beginning of the year’s fourth quarter. This is when you decide on those funds and assets to declare on your taxes.
What Tax Reduction for Dentists Looks Like
Dentists have dozens of opportunities for reducing taxes, depending on company size, how the practice uses funds, and what expenses the practice has.
Many savings opportunities fall into two primary categories of tax reduction: deductions and credits.
Understanding Deductions vs. Credits
A tax deduction is money taken off income to reduce the amount of taxable income. For example, if you had $10,000 in profits but a $1,000 deduction, you would only have to pay taxes on $9,000.
A credit reduces the amount you owe after taxes. For example, if you made a $10,000 profit and owed $2,000 in taxes but had a $1,000 credit, you would only owe the remaining $1,000 in taxes.
Tax credits are preferable over tax deductions because credits result in more savings.
Note, however, that most businesses have a maximum number of credits they can receive each year. So, strategically spreading your credits between years will result in the largest savings.
For example, you could wait before making more financial investments if you already reached your tax credit maximum. This enables you to make those financial moves in the next tax season and benefit from those savings. A tax planner can help you understand your tax credit limitations and what you can qualify for each year.
How Do Dentists Reduce Taxes through Deductions and Credits?
There are seven ways dentists can plan for tax season for the maximum number of deductions and credits:
- Shift incomes: Moving around your income streams to receive the lowest tax rate
- Shift expenses: Move expenses to where you can maximize your tax benefits
- Find loopholes: Use loopholes in the law to reduce your taxes
- Structure passive income: Avoid passive loss by strategically structuring your income
- Identify tax credits: Identify tax credits you’re eligible for
- Use smart investments: Strategically invest income to reduce taxes
- Build a tax-free retirement: Reduce or eliminate retirement taxes
The tax reduction strategies above are designed to reduce your taxable income in 2022. If your tax rates are lower in 2022 and you are going to have more taxable income in 2023, reducing income in 2022 may not be advisable.
Our team of experts can help you with your business and personal tax preparation.