Dental Industry: 5 Tax Tips for 2021 Year-End Planning

As we approach the end of 2021, it’s time to start thinking about planning for year-end. There are several unique opportunities dental practices should consider as the year comes to a close.

5 Tax Tips for Dental Practices

1. PPP Loan Forgiveness Income

While some practices had their first PPP loan forgiven in 2020, others waited until 2021 to apply for forgiveness due to uncertainty surrounding the tax treatment of the PPP loan forgiveness in late 2020. Additionally, practices that qualify for a second PPP loan may also have forgiveness of this second loan in 2021.

This year-end, with clarity that the income from the forgiveness of PPP loans is not taxable, practices need to plan for this income proactively. Depending on the practice structure, there may be opportunities for practice owners to distribute profits from their practice without paying any tax. Practice owners need to consult with their business advisors to maximize their tax benefits from this income.

Dental Webinar: Year-End Tax Planning 2021: What's New and What You Need to Plan For

2. Impact of Potential Tax Law Changes

On September 13th, the House Ways and Means Committee released proposed tax law changes. While these proposals have several hurdles to clear before they become law, they include tax increases for both individuals and corporations. The proposed changes would increase the top individual income tax rate from 37% to 39.6% in 2022. If these proposals come closer to enactment, tax planning for 2021 may look different than in years past.

With a potential tax increase coming in 2022, practice owners may look to recognize more income in 2021 to capture the revenue at lower 2021 income tax rates and defer deductions to 2022 when the deductions could be recognized at a higher tax rate. This strategy is the opposite of most year-end planning, but potentially increased tax rates in 2022 could turn typical planning on its head.

RELATED CONTENT: BIZ TIP

EMPLOYEE RETENTION TAX CREDIT, PPP LOAN FORGIVENESS, AND MORE FOR DENTAL PRACTICES

OPEN IN NEW WINDOW

3. Trust and Estate Tax Law Changes

The proposed tax law changes also contain significant estate law changes. The proposal would reduce the gift and estate tax exemption from $11.7 million to $5 million. Practice owners will need to revisit their estate tax planning with their advisor to evaluate the impact on their estate planning.

4. Employee Retention Tax Credit

Practices that qualified for and received the Employee Retention Tax Credit (ERTC) will have additional taxable income from the credit in 2021 that will need to be planned for at the end of the year.

RELATED CONTENT: BIZ TIP

DENTAL PRACTICES: IT'S TIME TO REVIEW YOUR FEE SCHEDULE

OPEN IN NEW WINDOW

5. HHS Provider Relief Funds

Many practices applied for and received Provider Relief Funds from the U.S. Department of Health and Human Services (HHS) in 2020. Any funds received in this program are taxable income in 2020 and practices will need to plan for this income in 2021.

RELATED CONTENT: EGUIDE

THE DEFINITIVE GUIDE TO BUSINESS TAX CREDITS AND DEDUCTIONS

OPEN IN NEW WINDOW

Practices also need to start planning for the HHS required reporting in early 2022. Practices that received Provider Relief Funds between July 1, 2020 and December 31, 2020 will need to complete reporting on the funds between January 1, 2022 and March 31, 2022.

© 2021 SVA Certified Public Accountants