It’s that time of year again. We accountants have prepared for it to the best of our ability, and hopefully taken some time to relax this weekend before the chaos ensues.
The IRS is opening e-file season tomorrow, January 29th.
Ladies and gentlemen, start your engines.
You may have already been to your preparer’s office, and of course we can all begin doing the work of your preparation.
Tomorrow is just the first day we can electronically transmit your tax return to the IRS.
Are you prepared? I’m hoping to be of some help to you here in this week’s short installment.
All Forms of Income
Let’s start with the basics: W2s. If you work for someone else who pays half of your FICA tax for you, and issues you a check, they also provide you a small form that has everything on it you need to report your income and withholdings to the IRS.
If you are one of my physician (or other business) entrepreneurs there is a strong possibility you also have a W2 from your own business as an officer-employee of your firm.
You may also have a working spouse. He or she will have one or more W2s, from every job they have worked.
Moving on down, you have interest income from banks. With the savings rates rising over the last year be ready for your tax to go up a little, as I would wager the vast majority of folks don’t withhold from savings earnings.
Dividends as well as capital gains and losses from sales of stock and other investments. You’re looking for a Form 1099-B, -DIV, or combined form for this information.
Business income (our specialty). You may be filing Schedule C with a 1040, or like most of our own clients have a separate prior filing such as S Corporation or Partnership income. Either of these is what we call “flow-through,” meaning you don’t pay tax with these returns (in most cases).
Instead, they produce a Schedule K-1 which you then report on your Form 1040 a month later.
Speaking of Schedule C, did you do anything else for money that was otherwise not reported?
In IRS-speak, just because you didn’t get a 1099 from someone doesn’t mean you don’t have to report your income. They really would like you to pay tax on EVERY dollar you make.
Think hard about this one, because if you’re in the first year or two of a new business, and your expenses are greater than your earnings you WANT to be filing them.
Reason? A business net loss reduces your total gross income.
Here’s an example from my personal life: I’ve been a bit of a performing musician over the years, since my late teens, and after a 3-year COVID-influenced layoff I returned to playing.
Except for one show with the first band I joined I had no revenue in 2023, but I did have about $1,000 in expenses by the time I put in strings, equipment, and my mileage to rehearsals and gigs.
You can bet I’m filing that. So, if you have creative tendencies, and sell your goods or services, take a good hard look at that. It pays, sometimes.
Legally Reducing Income
Now we get to the good part.
The write-offs.
Were your kids 17 and living at home at the end of the year?
That’s still worth $2,000 per child. And that’s a credit, not a deduction.
That means a dollar-for-dollar reduction of tax.
Are they 24, still supported by you, and going to college? They’re still a dependent, and that’s $500.
Plus don’t forget about the American Opportunity and Lifetime Learning credits, if you’re paying for it.
Business Mistake #1 – Not Taking Full Advantage of Expense Write-offs
This next section is an excerpt from my book, “5 Mistakes Physicians Make That Hurt Cash Flow.”
I include it here because this one can help any businessperson, in my humble opinion.
In the simplest terms, the basic formula for net income is gross revenue, or the money coming into your business, less the ordinary and necessary expenses of that business in the same time period:
Net Income = Gross Revenue – Expenses
This information is tracked by the month and totaled for the year when you file taxes.
Imagine this: every business expense you forget to write off is a dollar that’s unnecessarily taxed, diminishing your hard-earned revenue.
This isn’t just about keeping receipts; it’s about understanding the breadth of what can be legitimately claimed to safeguard your bottom line.
Expenses include:
- Advertising
- Auto and travel, if you go out on calls
- Cleaning and maintenance
- Continuing education
- Insurance – both liability and malpractice
- Legal and other professional fees
- This includes accounting and/or bookkeeping, as well as tax planning.
- Payroll and management
- Long-term interest payments for diagnostic machinery.
- Other interest
- Repairs
- Staffing and recruitment
- Supplies – office
- Supplies – consumable medical
- Taxes & licenses
- Utilities
- Depreciation expense (or depletion)
- This is where you can potentially save a fortune in taxes. More on this later
- Other
- There are potentially dozens of legitimate expenses that don’t fit above. How about:
- Bank charges and fees
- Client appreciation expenses
- Dues & subscriptions
- Postage & shipping
- Telephone (wired and wireless)
- Waste disposal
- Anything else that can be considered ordinary and necessary for your medical practice business
- There are potentially dozens of legitimate expenses that don’t fit above. How about:
Don’t let item 17 be an afterthought. Every overlooked expense, from bank fees to waste disposal, is a missed opportunity to reduce your taxable income.
These aren’t mere numbers; they’re the lifeblood of your practice or other business.
If you have an expense, and it is ordinary and necessary for you to function as a business owner, don’t miss the chance to reduce your net income further.
In Conclusion
Physician entrepreneurs, would you like to discuss how having a non-equity financial partner guiding your practice’s business future can increase your wealth, reduce your taxes, and provide the peace of mind that will allow you to put 110% of yourself into your patient care goals?
We would like to talk to you as well.
We are opening our roster to accept up to two new business advisory clients in the upcoming month of February.
You don’t have to wait until the first, either! Use the link I’m providing below now to choose a time to talk most convenient for you.
You will also receive your own copy of 5 Mistakes Physicians Make That Hurt Cash Flow, just for booking a call.
Imagine having a financial coach and compliance expert by your side, so that you can focus your professional clinical time where it belongs: on patient care.
Does that sound good?
Then reach out to me, and let’s talk: Free Profit & Cash Flow Analysis