Top 3 Tax Saving Adjustments Chiropractors Need to Make For 2017
by Don Rasmussen, CTS, CAP
As you know the term “subluxation” is used by doctors of chiropractic to depict the altered position of the vertebra and subsequent functional loss which determines the location for Chiropractors to perform a spinal adjustment.
When a person has a subluxation of the spine it has caused functional loss and pain. For most Chiropractors when it comes to the subject of taxes we look at tax subluxations as the lack of effective tax planning. This, in turn, creates financial loss and pain with an unnecessary overpayment of taxes.
- Are you satisfied with the taxes you pay?
- Are you confident you are taking advantage of every available break?
- Is your tax advisor giving you proactive advice to save on taxes?
If you are like most Chiropractors, and most small business owners, your answers are “no,” “no,” and “huh?”
And if that’s the case, I’ve got bad news, and I’ve got good news.
The bad news is, you’re right! You do pay too much taxes – maybe tens of thousands more per year than the law requires. You are almost certainly not taking advantage of every tax break that you can. Our tax code is thousands of pages long, with tens of thousands of pages of regulations. There are volumes of court cases interpreting all those laws, regulations, and guidance. The sad reality is that there is probably no one alive taking advantage of every tax break they’re entitled to, simply because there are so many of them out there.
And most tax advisors aren’t very proactive when it comes to saving their clients’ money. They put the “right” numbers in the “right” boxes on the “right forms,” and file them by the “right” deadlines. Then they call it a day! They do a fine job recording the history you give them. But wouldn’t you prefer someone to help you write history?
The good news is you don’t have to feel that way! You just need a better plan – a legally and ethically one. You’ve already taken a giant step in that direction, whether you realize it or not. For example, did you know owning your own practice is the biggest tax shelter left in America?
You make choices about your tax bill every day. Are you making the right choices? Or are you like most Chiropractors and professionals who are leaving money on the table, wasting money on taxes you just don’t have to pay?
The Top 3 Tax Saving Adjustments Chiropractors Need to Make:
1. Failing to Plan
The first and biggest mistake is failing to plan! I don’t care how good you and your tax preparer are with a stack of receipts on April 15. If you don’t know you can write off your kid’s braces as a practice expense, you are paying more taxes than you need to pay.
Tax planning gives Chiropractors two powerful benefits you can’t get anywhere. It’s the key to your financial defense. As a practice owner, you have two ways to put cash in your pocket. There is financial offense, which means making more. And there is financial defense, which means spending less. Spending less is easier than making more.
First, taxes are your biggest expense. So, it makes sense to focus your financial defense where you spend the most. Sure, you can save 15% on car insurance by switching to GEICO, but how much will that really save you in the long run?
Second, tax planning guarantees results. You can spend all sorts of time, effort and money promoting your practice– and that still won’t guarantee results. Or you can set up a medical expense reimbursement plan, deduct the cost of your teenage daughter’s braces, and guarantee savings.
But those guaranteed results start with planning. You can’t ever deduct money you spend on a medical expense reimbursement plan if you don’t set it up in the first place.
2. Audit Paranoia
The second biggest mistake is nearly as important as the first, and that is fearing, rather than respecting, the IRS. Many Chiropractors are simply afraid to take deductions they’re entitled to for fear of raising the proverbial “red flag.”
But what are your odds of being audited? The truth is, most experts say it pays to be aggressive. That’s because overall audit odds are so low that most legitimate deductions simply aren’t likely to wave “red flags.
You should never be afraid to take a legitimate deduction. And if your tax professional does recommend you shy away from taking advantage of a strategy you think you deserve, ask them to explain exactly why they say so. And don’t be satisfied with a vague reply that it will “raise a red flag.” Remember, it’s your money on the table, not theirs.
3. Wrong Business Entity
The next mistake is choosing the wrong business entity. Or possibly not having multiple entities.
Most Chiropractors start as sole proprietors, then, as they grow, establish a limited liability company or corporation to help protect them from practice liability. But choosing the right practice entity involves all sorts of tax considerations as well. Many Chiropractors are operating with entities that may have been appropriate when they were established – but just don’t work as effectively now.
There are ways you can organize your business:
• A proprietorship is a practice you operate yourself, in your own name or trade name, with no partners or formal entity.
• A partnership is an association of two or more partners.
• A C corporation is a separate legal “person” organized under state law.
• An S corporation is a corporation that elects not to pay tax itself. Instead, it files an informational return and passes income and losses through to shareholders according to their ownership.
• Finally, a limited liability company (LLC) or limited liability partnership (LLP) is an association of one or more “members” organized under state law.
If you operate your practice as a sole proprietorship, or a single-member LLC taxed as a sole proprietorship, you may pay as much in self-employment tax as you do in income tax. If that’s the case, you might consider setting up an S corporation to reduce that tax.
If you’re taxed as a sole proprietor, you’ll report your net income on Schedule C. You’ll pay tax at whatever your personal rate is. But you’ll also pay self-employment tax, of 15.3% on your first $127,200 of “net self-employment income” and 2.9% of anything above that. You’re also subject to a 0.9% Medicare surtax on anything above $200,000 if you’re single, $250,000 if you’re married filing jointly, or $125,000 if you’re married filing separately.
Now, you still must pay yourself a “reasonable compensation” for the service you provide as an employee – in other words, the salary you would have to pay to hire an employee to do the work for you. If you pay yourself nothing, or merely a token amount, the IRS can recharacterize up to all your income as wage and hit you with some very hefty taxes, interest, and penalties. So, don’t get greedy! But according to IRS data, the average S corporation pays out about 40% of its income in the form of salary and 60% in the form of distributions. So, you can see that there’s at least a possibility for real savings.
While reading this, you’ve probably found some things you aren’t doing as effectively as you could be. Maybe you’re operating your practice in the wrong entity or you probably haven’t done any real planning at all. That’s OK – most haven’t, simply because they don’t realize how important it really is or recognize there are more than 25 common mistakes chiropractors make and these are just three of them. If that’s the case, then isn’t it about time you stop settling for just recording history? It’s time to look at your taxes with new eyes and build a comprehensive plan that helps you accomplish your goals in the most tax-efficient way possible.
That’s where I come in.
I give you the plan you need to stop wasting thousands of dollars in taxes you don’t have to pay.
I’ll sit down with you and your most recent returns. I’ll take the time to walk through those returns, item by item by item. I’ll look at how you make your money and where you spend it. Then I’ll tie it all together in a comprehensive plan that helps you accomplish your goals in the most tax- efficient way possible. You’ll be satisfied knowing you’re doing everything the law allows to get that tax bill off your back. And you’ll rest easy knowing everything we recommend is court-tested and IRS-approved.
I can’t promise how much you’ll save until we sit down with you and your returns. But I can promise you’ll save more than are you now.
So please, call me with your questions. Come to me for a plan. You have nothing to lose but taxes, and possibly thousands to gain. Why would you wait to make that call?
Don Rasmussen, a Certified Tax Strategist (CTS), Chartered Advisor in Philanthropy (CAP), a tax reduction strategist having worked with individuals, businesses and charities around the US for over 30 years. He has guided them to make informed decisions, avoid costly mistakes, maximize tax efficiency, lower their taxes, and find money falling through the cracks in their current tax planning all without changing their CPA.