The Importance of Tax Planning for Practice Owners

What are the critical reasons to have a strategic tax strategy?

Minimizing your tax liability begins by operating within the legal framework of the current tax law. Proper tax planning helps you pay only what you owe—not more. This includes taking advantage of deductions, credits, and tax deferral strategies such as depreciation of equipment, Section 179 expensing, home office, etc. Tax planning with your financial advisor and CPA should be done mid-year so opportunities are not missed by waiting until the year has ended.

As a business owner, you should also pay close attention to the type of entity structure you form for your practice and any other businesses you may own. Entity structure, whether it is designed as an LLC, S corp, C corp, or sole proprietorship, significantly impacts how income is taxed. A proactive tax strategy can determine if switching entity types could reduce self-employment taxes or help you take advantage of income splitting between W-2 wages and distributions.

Business owners also have an opportunity for retirement savings strategies and wealth creation. By working closely with your advisory team, you can create a customized tax plan that allows you to maximize retirement contributions for a 401(k), SEP IRA, and defined benefit plan. Contributions reduce taxable income now and help build wealth for the future.

Another notable piece for tax planning is cash flow management. Planning for quarterly estimated tax payments avoids underpayment penalties and cash crunches. This step can help business owners align tax payment deadlines with business seasonality and investment plans.

It’s important to take these points into consideration as well:

• Tax planning helps ensure compliance with changing tax laws that impact health care professionals but also will allow you to take advantage of tax laws that can benefit you.
• When it's time to sell or retire, tax planning helps minimize capital gains, recapture taxes, and structure the sale to preserve more wealth. This is also relevant for bringing on a partner or transitioning ownership.

• Large purchases—such as dental chairs, x-ray machines, and software—can often be timed and written off to optimize tax years. Section 179 and bonus depreciation can significantly reduce taxable income.

In conclusion, tax planning isn’t just about reducing your tax bill—it's a foundational part of running a successful and profitable practice. Without it, a business owner might unknowingly leak tens of thousands of dollars annually that could be reinvested into the business, personal wealth creation, or retirement savings. Your team financial advisor, working in coordination with your CPA, can put a proper tax plan in place to help mitigate your taxes both professionally and personally. Tax planning meetings should be open and ongoing discussions that are held during the middle of the year, not just at year’s end. Combining well-crafted tax planning with a wealth creation plan through tax efficient savings goals will lead to the most optimal outcome while limiting. If you have questions about creating a strategic tax plan for your practice, our team would love to help you. Schedule a conversation with a practice integration advisor today!

This communication is for informational purposes only. The content does not purport to present a complete picture, but Focus Partners believes the information is representative of issues and needs facing some clients. This should not be construed as specific investment, tax, or legal advice.

This represents the opinions of Focus Partners, may contain forward-looking statements, and presents information that may change. Nothing contained in this presentation may be relied upon as a guarantee, promise, assurance, or representation as to the future. This is prepared using third party sources considered to be reliable; however, accuracy or completeness cannot be guaranteed. The information provided will not be updated any time after the date of publication.

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