Prepare for Tax Success in 2022 With These Ten Proactive Steps.

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Your first priority as a dentist is to provide patients with happy, healthy smiles. But you also have a business to operate, so keeping your finances and taxes in order comes with the territory. As you put the finishing touches on your 2021 tax return, it may be a good time to start planning for 2022.

Most taxpayers don’t need to worry about the IRS, but many dentists are both small business owners and high-wage earners. As a result, you may be contacted by the Internal Revenue Service more frequently than the average small business owner due to an issue with your tax return. According to the Wall Street Journal, the IRS issued over 3 million notifications in 2020 for math errors on forms alone.

So, it may be a good idea to get a grasp on tax preparation sooner rather than later, and you don’t have to wait until Uncle Sam calls. Here are some pointers to make next year’s filing a breeze.

 

IRS

1. Begin arranging right away.

A little planning can go a long way. By compiling your documentation on a monthly basis, you can prevent a last-minute scramble at the end of the year. For example, go over any forms you’ve already filed, such as Form 941, and double-check their completeness. Don’t forget to check your social security number, EIN, and any other documentation that the IRS could use to identify you or your employees. Move all forms, invoices, and receipts to a single central area – either online or in a filing cabinet – and the resource will develop over time and be ready for you when tax season arrives. You’ll be relieved to know that everything is ready to go!

2. Accounting assistance for your business that is industry-specific

It’s vital to remember that tax rules change frequently, and it’s your accountant’s job to stay on top of them. Working with a CPA who understands tax rules pertaining to running a dentistry business or information pertaining to COVID-19 pandemic-related financial assistance might be beneficial because it may effect your taxes. Some of these improvements may have a direct influence on you as a business owner and high-wage earner, so you need someone who is up to date – and there are plenty of CPA firms that specialise in the dental profession. In addition, your tax professional or accountant should keep you up to date on new or changing deductions that may have an impact on how you manage your firm.

3. Consult with your tax accountant as soon as possible and on a regular basis.

Setting aside a few minutes once a quarter to speak with your accountant can help lessen the likelihood of a mistake next April. Regular chats are also an excellent method to stay up to date on tax law changes and reduce your chances of being audited by the IRS. Record revenue and spending in real time during your meetings so that you and your tax professional can detect problems early. Furthermore, the more frequently you communicate with your tax advisor, the better they will understand your business needs, allowing them to provide more proactive, consultative guidance. It can pay off handsomely: small business owners who have a good relationship with their accountant are 32% more likely to expect a major gain in income in the coming year. So, think about how a monthly talk can help you improve your profession.

4. Seek assistance with payroll.

Professional tax preparation allows you to focus on your patients, and skilled payroll support can be just as beneficial. Most organisations that provide online payroll services can compute and transmit taxes precisely and on time, so avoiding human mistake and the problems that come with it. In addition, depending on the service provider, some may be able to assist with tax concerns. For example, our staff at OnPay provides customers with an error-free guarantee, which means we’ll be available to assist you if you receive a letter from the IRS about payroll tax issues.

5. Make a retirement plan available.

Offering a retirement plan can help your practice’s employees stay happy and productive. Not only can it assist retain talent, but there are some specific employer contributions and administrative fees that can be tax-deductible when you give a qualified retirement plan or 401(k). In some cases, business owners may be entitled for a $500 per year tax credit to aid with employee education and plan counselling during the first three years of a plan. As both an owner and an employee, you could benefit from the 401(k) plan’s tax-deferred contributions. Just make sure that the programme you select connects with your existing back-office systems or employee payroll deductions.

6. Keep meticulous records of your trips and costs.

Are you planning on attending any dental conferences or doing any continuing education classes this year? The distinction between business and personal spending can be a little hazy at times, so it’s best to keep it as clear as possible. It has a lot to do with the Tax Cuts and Jobs Act of 2017, which abolished many dentists’ ability to deduct entertainment expenditures and lowered the deduction for most business meals by half. Now, improperly separating expenses once or twice is usually not a big concern, but if it becomes a pattern, you face the danger of incorrectly reporting taxes. It’s crucial to keep in mind because the IRS scrutinises write-offs for items linked to your practise.

7. Keep track of philanthropic contributions.

Charitable gifts go a long way toward helping your community and can sometimes result in considerable tax deductions. Just make sure to keep detailed records of your contributions. If one or two appear to be excessive for your income category, it may raise a red flag, and the IRS may want to inspect your records. Don’t forget to file Form 8283, which is utilised for noncash charitable contributions, if you expect to claim noncash deductions of more than $500. Also, be wary about claiming charitable contributions as personal or company deductions. Distinct forms of business entities have different restrictions and needs.

8. Make payments to vendors in December

Is your company using the cash method of accounting rather than the accrual method? If that’s the case, this tip is for you. The cash technique necessitates calculating your income and expenses based on when money enters and exits your bank account. So, by paying bills in December, even though they aren’t due until January, you can minimise your taxable income in the current year, lowering your tax liability.

9. Make a purchase today to save money later.

If you intend to acquire major pieces of equipment, such as X-rays or working lights, early in the new year, it may be a smart idea to buy them ahead of time and claim the deduction for the current tax year. Just keep in mind that a deduction isn’t always an equal return on investment. It’s a good idea to consult with your tax advisor to ensure that spending now will minimise your overall tax burden rather than just kicking the can down the road.

10. Be prepared to receive W-2s and 1099s.

You will withhold payroll taxes and send them to the IRS throughout the year (or any state agencies if required.) When January arrives, you’ll have a high-priority item at the top of your to-do list: supply your employees with W-2 forms and 1099-NECS so they can file their taxes. Don’t put this off until the last minute, especially since you’ll already have a lot on your plate when it comes to finalising an entire year’s worth of business income and spending. Make time for yourself so that you can enjoy peace of mind. Also, keep in mind that numerous payroll service providers can handle everything for you.

A few preemptive efforts taken throughout the year can go a long way toward ensuring that your practise is ready for tax season. It will free up time for you to accomplish more of what you enjoy, such as building your business and assisting patients, while spending less time communicating with your accountant.

And if you’re being audited, know that you’re not alone. Every year, over 500,000 Americans find themselves in the same situation, and things will work out. Begin by examining the IRS’s advice to become acquainted with frequently asked questions. Then, work with your accountant to get organised so you can arrive calm, collected, and ready to go.

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Are you ready to start planning? We have a printable 2022 Tax Deadlines for Dentists that will keep you up to speed on significant tax dates throughout the year. You can also sign up for the IRS’s calendar to receive notifications directly in your inbox.

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