For good or ill, dentistry is a business, and your financial health matters nearly as much as the oral health of your patients. With a new year dawning, both businesses and individuals are starting to process their 2020 taxes. While taxes and tax preparation may seem like a chore, they’re a vital component of financial success and one last opportunity to make the most out of the previous year.
For most dentists–indeed, for most taxpayers–one of the most important pieces of this process is ensuring that you’ve taken advantage of every available deduction. While this may sound obvious, a huge amount of money is lost to taxpayers every year as they fail to fully use their deductions and overpay. Towards that end, we are offering you here a list of deductions that many dentists may be overlooking. Get familiar with them and if necessary discuss them with your tax preparer–the money you save will be your own!
State sales taxes are an oft-overlooked deduction for many people. In brief, taxpayers may be able to deduct either state sales taxes, state income taxes, or both depending on their state of residence. Some of these deductions are relatively new, so it pays to do your homework and see which ones apply to you.
Out-of-pocket charitable expenses: While most taxpayers know that charitable donations may be deducted, it’s less well known that out-of-pocket charitable expenses may be. This includes expenses directly related to volunteer work such as travel, lodging, and other material costs.
Student loan interest: While previously student loan interest only counted as a deduction if the parents were liable for the loan and actively paying it off, now students who are no longer dependents may deduct that interest even if they aren’t paying the bill directly.
Moving expenses for your first job: Moving expenses related to taking a new job have long counted as a deduction. Now, however, new grads who are taking their first job may deduct such expenses as well.
Job-hunting costs: Just relocating for a new job is a deduction, now expenses directly related to the job search may be deducted as well. These may include resume preparation, employment agencies, air travel, taxis, printing costs. There are some limits to the total amount which may be deducted relative to your total income, however.
Summer child care expenses: To the relief of parents across the nation, summer child care expenses now count as a tax deduction.
Lifetime learning credit: Dentistry is an ever-evolving art and science, and continuing education is part of every dentist’s professional growth. Toward that end, tax deductions and credits are available for lifelong learning and professional development costs. This amounts to a 20 percent credit on tuition expenses, with a maximum of $2,000 on the first $10,000. You and your spouse may both claim this credit if you were enrolled at an accredited institution and incurred the expenses directly.
Child care credit: Previously, taxpayers were limited to a $5,000 child care credit which only applied through their employer-based reimbursement account. Now, up to $6,000 in child care expenses may qualify for the credit depending on the taxpayer’s situation.
The child tax credit has doubled: Just as other child-related expenses now qualify as deductions and credits, the child tax credit has doubled from $1,000 to $2,000 per child under the age of 17. While there are income limits attached to some deductions and credits, even those with zero tax liability now qualify for up to $1,200 per child.
Lost deduction from prior years: Like many of us, you may have missed deductions from previous years. If so, don’t fret; there are rules in place to allow you to make up for lost deductions from previous years. As this varies from deduction to deduction, you’ll need to consult your tax preparer or financial advisor for details.
We hope this list of deductions and credits serves as a starting point for your tax preparation this year. As tax law is complicated and changes regularly, there are likely some unexpected deductions for which you qualify that didn’t make it onto your list here. This is why expert financial advice is so important, both during tax season and year-round. Whether you’re looking for every applicable deduction or planning your financial future, we hope you’ll seek out the guidance you need in 2021!