As we approach the end of 2021, it’s time to start thinking about planning for year-end. There are several unique opportunities veterinary practices should be considering as the year comes to a close.
5 Tax Tips for Veterinary Practices
1. Manage Your Cash Flow Effectively
For many practices, 2021 is on pace to be one of the most profitable years ever. This means that many practices are flush with cash right now and they need to consider how to manage this cash flow effectively. Options include paying down debt, investing in the practice with equipment or physical space upgrades, retaining some cash in the practice for future needs, or distributing the cash to the owners in a tax-efficient manner.
2. Reduce Your Taxable Income
In addition, without planning, many practice owners will pay a record amount of federal and state income taxes for the calendar year 2021. Before year-end, it is essential to review your tax situation and identify ways to reduce your taxable income. These could include making a more significant retirement plan contribution, making sure all practice-related expenses are paid, and determining the most tax-efficient way to depreciate any new equipment purchases.
3. Review Your Fee Schedule
When was the last time you determined if your fee schedule is competitive and whether it reflects the level of service you are providing? Many practice owners admit that their fees are likely on the low side. Start with the top 10 services you offer and compare them to your market. If you find they are low, consider how to best get the fees up to market value. This is especially true right now as practice owners see increased expenses related to staff costs, lab, and supplies.
4. Refinance Debt
Interest rates continue to be near historically low levels. If you haven’t already, it might be a good time to refinance some of your debt. Financial institutions are willing to review your practice acquisition loans, real estate debt, lines of credit, credit card debt, equipment loans, etc. and potentially provide you a refinancing package that could save you a lot of money and lock in a lower interest rate into the future.
5. Prepare for Future Tax 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.
It will be necessary to monitor if and when these proposed changes become law and plan accordingly before the end of the year.
© 2021 SVA Certified Public Accountants