Top 5 Reasons Why Chiropractors Consistently Overpay Income Taxes:
1. Choose the right entity: Most chiropractic offices would b taxed-advantaged to operate as either an S-Corporation or an LLC that is taxed like a corporation. Partnerships are not as tax effective and sole proprietors have the highest IRS audit rate and the lowest ability to operate efficiently. Most sole proprietors realize a 30-50% decrease in tax liability simply by converting to a corporate form.
2. Not Understand tax planning techniques: Knowing how to get the most benefits out of your correct entity. You are an expert in the Chiropractic field. Now you need an expert to help you navigate the Internal Revenue Code to develop the best tax plan that will integrate clinic operation with your goals and individual circumstances.
3. Not properly classifying and documenting income and expenses: Just like invoicing your patients; bills and expenses must be properly documented for maximum return potential. This is really no different than how you handle your business. If you adjust, but do not classify the service correctly or document accurately, will not get paid. The same adjustment classified and documented accurately will get paid. The ability to deduct a private school, children's braces or a new Mercedes also depends upon classification and documentation. Talk to a tax expert to learn the rules and how to benefit from them.
4. Relying on tax accountant: Money Magazine sent out a hypothetical tax return to 46 accountants and received 46 different amounts due for the same return. Taxes due were from $36,320 to over $94,000.During tax season accountants prepare on average over 6 returns a day. They are solely relying o yr Profit/Loss statement; which does not provide them the full price of your circumstances.Take the time to build a relationship wit a tax expert prior to tax season. Sit down with them at least quarterly to discuss the health of your business, tax planning, new tax laws, and audit proofing.
5. Not looking for improvement: Chiropractors are experts in trying new ways to increase patient visits, collect higher fees and extending that PVA; however, they do not take the time to regularly review reporting to determine if profit margins, effective tax bracket and other efficiency measures are being met. Your practice is the vehicle that builds your wealth. Net income, not gross, is the key statistic. Overall, it is usually a lack of understanding that something can actually be done that prevents you from taking control. One of the basic rules of business accounting is:
It is not the amount of money you make that determines your tax liability, but how you take and account for that money matters. Take action....Meet with a tax expert and develop a plan you can manage and control.
