Step-By-Step Guide on How to Reduce Taxes for Chiropractic Clinics for USA Companies
Running a chiropractic clinic in the U.S. doubles your challenge because you have to run daily operations while ensuring financial efficiency. Paying taxes can be expensive if not correctly managed, hence reducing the profitability of your business. The good news is that it is possible to reduce your tax burden through effective strategies. Follow these steps to ensure reduced taxes for your chiropractic clinic, which means keeping more of your hard-earned revenue in your pocket.
Step 1: Concentrate on Proper Entity Selection
Tax minimization starts with choosing the right business entity. There are as many options for forming a business entity for a chiropractic clinic as there are for any other business. Some common choices include:
Sole Proprietorship: Very simple and easy to form but makes all the income of the business go through the personal tax rate.
LLC: Offers flexibility in taxation as owners can choose how to be taxed.
S-Corp: More tax flexible. You will be able to take a legitimate salary, but the rest of the income is considered dividend income, which is taxed at a lower rate.
C-Corp: Useful for larger chiropractic clinics that want to reinvest most of the profits since they have a lower corporate tax rate.
Step 2: Capitalize on Section 179 Deductions
Section 179 permits individuals to minimize the full cost of qualifying items purchased or financed during the tax year. Rather than spreading these deductions over several years, one can expense them immediately.
For example, take the case where you purchase new chiropractic tables, diagnostic equipment, or computers for your clinic. During the year you buy them, you can claim 100% of that cost. That means it can decrease the amount of taxable income, especially in the years you have invested a lot in equipment.
Ensure you only use up to the limits. Section 179 allows for. For 2024, the deduction limit will be $1.22 million, with an expenditure cap on equipment at $3.05 million.
Step 3: Utilize Regular Deductions on Long-Term Assets
If Section 179 deductions are not applicable or you have already maximized the provisions, you can still claim regular depreciation deductions. Chiropractic clinics invest a lot in long-term assets like medical equipment, office furniture, and vehicles, which can be depreciated over some time.
Maybe a particular property has an estimated useful life of seven years. You can incrementally reduce your taxable income by depreciating the cost of such properties over time. Be aware that different types of assets depreciate at different rates.
Step 4: Look into Home Office Deductions
You might be eligible to claim a home office deduction if you operate your chiropractic clinic from home or have a specific office space in the house. The IRS rules state that small business owners are permitted to deduct certain home office expenses provided that the space is only used for business purposes.
Deductions can be made on a part of your mortgage or rent, utilities, home repairs, and property taxes. The IRS has devised two ways for home office deductions: a simplified option that supports a $5 deduction for every square foot up to a limit of 300 square feet or the regular way that requires more record-keeping but yields a higher deduction.
Step 5: Lease Equipment Whenever Possible
Another good way to reduce taxes for your chiropractic clinic is by leasing equipment instead of purchasing it outright. The primary benefit from leasing equipment is often the fact that your ability to offset the entire lease payment on your business tax return as a business expense. It's a great move, especially if the equipment is outdated within a few years, which will prevent you from claiming deductions.
Step 6: Focus on Retirement Plans
A retirement plan is not only an invaluable tool to prepare for the future, but it will also decrease the current tax liability of your clinic. Contributions to a qualified retirement plan such as a SEP IRA, SIMPLE IRA, or 401(k) are tax-deductible, lowering taxable income.
For instance, you can invest up to $69,000 (in 2024) in a SEP IRA, depending on the income of your clinic. With an individual 401(k), the combined contribution limit of the employer and employee is $69,000. An additional $7,500 is available as catch-up contributions for those above 50 years.
Step 7: Hire Employees from Certain Groups
The WOTC (Work Opportunity Tax Credit) is a program adopted by the federal government that provides tax incentives to businesses hiring employees from certain target groups. Among these interest groups include veterans, public assistance group members, and ex-felons.
As a chiropractic clinic, hiring from these groups may qualify you for up to $9,600 deduction per employee, depending on the group and hours worked. That is a great way to reduce your tax bill while doing good work by providing an income source to many in need.
Step 8: Get Family Members to Work for You
Hiring family members can also decrease your tax liability. By employing them to work at the chiropractic clinic, you are at liberty to pay them a reasonable wage that will be allowable as a business expense against this assessment.
Children under 18 who work for their parents do not have to pay Social Security or Medicare taxes. That means you can sweep out a pretty healthy chunk of your taxable business income into that child's lower tax bracket.
Step 9: Leverage Health Savings Accounts
Another exciting tax-saving tool is the Health Savings Account (HSA) for chiropractic clinics. If you provide a high-deductible health plan for your employees, you can set up an HSA because it makes your contributions tax-free.
Contribution limits for HSA in 2024 are $4,150 for individuals and $8,300 for families. These reduce your taxable income, while withdrawals for qualified medical expenses remain tax-free.
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