Year-End Tax Planning Tips for Your Veterinary Practice
Few people like unwelcome surprises. One of the worst is a call from your accountant telling you that you owe significantly more money than expected just days before a tax deadline. Immediately you wonder why this wasn’t planned for months ago. With the calendar year-end right around the corner, now is the time for veterinarians to start planning and finding ways to manage, and possibly reduce, their 2020 tax liability.
For many, the perception is that 2020 will be a down year with reduced income and related tax liabilities. However, vet practices have been able to manage the pandemic remarkably well. Curbside service allowed many practices to continue mostly uninterrupted patient care to their clients. As a result, most practices have been able to mirror 2019 performance and some are even seeing increased revenues and net profit. Without proper planning, many will also experience a surprise at tax filing time.
In addition, the Paycheck Protection Program (PPP) loan provided a cash infusion for many practices when the future was unknown. Current guidance from the IRS states that while the forgiveness of the loan is not taxable income, the related expenses paid with the proceeds are non-deductible for income tax purposes. So in order to estimate net income and projected taxable income, practices may need to add the amount of the PPP loan forgiveness to their financial statement income. If not planned for, this potential add-back may increase the expected tax liability at filing time. There is still much clarification needed on this subject and a lot will depend on the actual timing and forgiveness of the loan.
In the meantime, vet practices should consider the following:
Many practices put a hold on significant equipment purchases, remodeling projects, building additions, etc. As such, some practices won’t have the opportunity to accelerate the related depreciation expense on these items. Now is the time to reconsider these items if applicable to you.
When was the last time you considered whether your company-sponsored retirement plan is the right plan for you right now? A more robust 401(k)/profit-sharing plan could provide a larger tax deduction while increasing the amount stashed away for retirement. It could also provide a nice benefit to your staff at a time when retention is a challenge.
Are all of your business-related expenses paid for by the business in order to be tax deductible? Current IRS guidance states that for expenses to be deductible, they must be “ordinary and necessary” in your business. This language can be very vague and your expenses should be revisited from time to time to make sure you are minimizing your tax liability.
2020 has been a year of many ongoing challenges. But with some proactive planning now, you can help to avoid unwanted surprises at tax filing time. Reach out to an SVA professional to start the conversation today.
Andy is a Principal with SVA Certified Public Accountants and focuses on the dental, veterinary and healthcare industries. He works with practices to manage their financial matters and set short and long-term goals.