Keeping more of your hard earned money without losing all your profits to the IRS, might feel impossible as a dental practice owner, but what if there was a way to do exactly that?
One tax reduction for dentists that could offer you a strategic opportunity to defer your taxes, reduce your liabilities, boost cashflow, and stay compliant, is a cost segregation study.
What is a cost segregation study?
A powerful tax strategy that enables owners of dental practices to reclassify specific assets within their facilities, a cost segregation study is a method of identifying certain portions of a property that qualify for accelerated depreciation.
From specialized lighting and dental equipment, to cabinetry, practice owners can depreciate certain assets over a shorter period, instead of over the regular period of 39 years, enabling them to increase deductions sooner.
When building, buying or renovating a dental practice, this strategy really comes into its own. Because instead of having to wait for many years to realize the full benefit of depreciation, you can unlock those savings with cost segregation, far earlier, and provide your practice with immediate financial relief and investment flexibility.
Why is a cost segregation study so relevant to dentists?
Most other owners of small businesses don’t face the type of financial challenges that dental professionals face. From the high cost of overheads and investments in specialist equipment, to strict requirements for compliance, running a dental practice can prove challenging from a financial perspective. But cost segregation can be really useful, and here’s why:
- Boosting cashflow – with depreciation accelerated, practices can take advantage of bigger deductions in the early years of the business, which then frees up cash that can be reinvested in tech upgrades, practice expansion or training.
- Deferral of high tax liabilities – large tax payments can be deferred when front-loaded tax deductions are taken advantage of, giving practice owners more time to allocate funds to other important aspects of the business.
- Optimization of tax strategies – depreciation is an important part of cost segregation studies, but they also enable practices to make their overall tax plans more strategic and efficient by maximizing every benefit they may be eligible for.
By working with a dental tax professional, you can learn how to use cost segregation studies as a tool for thriving in what is an exceptionally competitive healthcare landscape.
What happens during a cost segregation study?
With the right professional guidance, a cost segregation study is actually quite simple and efficient, here’s what happens:
Firstly, a consultation takes place
Essential factors such as renovation or acquisition costs, and assets, must all be reviewed comprehensively during the initial consultation phase.
Then, an in-depth analysis of the property is carried out
With help from engineers and tax experts, a detailed property analysis is carried out. During this stage, all eligible assets are documented by identifying technology systems, and non-structural elements, even decorative finishes, some of which may be unique to dental practices.
Next, qualifying assets are reclassified
Once the analysis is finished, all qualifying assets are reclassified into depreciation categories that are shorter, such as 5, 7 or 15 years.
Lastly, the findings are implemented and taxes filed
For full compliance and maximized savings, the analysis findings are integrated precisely into your tax plan and overall financial strategy.
Provided you work with a firm experienced in dental practice accounting, cost segregation studies can be used to help you navigate tax season with ease, make substantial savings, and enhance your financial flexibility as a dental practice owner.