Veterinary Practice Tax Season Tips & Advice
Whether your veterinary practice’s year has been filled with new patients or packed with returning pets, animals are an important part of your business and your patients’ lives. While taking care of those furry friends is like taking care of someone’s family member, it doesn’t mean that your veterinary clinic shouldn’t be profitable.
So often we see veterinary practices ill-prepared for tax season yet we also see those are all ready. Where does your veterinary clinic fall, somewhere in-between? I wanted to share some tips and advice about what’s new, what tax incentives there might be or how the relief programs will impact their tax filing this year.
Veterinary Clinic Capital Investments
While this year may have been challenging for many veterinary clinics, it also presented itself as a good time to plan for the future and for capital investments. Pets will always need care, and even in a difficult economy, strategic investments in capital equipment can help your veterinary practice modernize, offer more services, and attract new patients, while helping you earn more income.
If you have made a capital investment this year, there are tax implications to that investment. As part of your capital investment planning, there should be ample research into areas such as financial analysis, projected income potential, efficiency savings, financing vs cash purchase and many more factors.
An accountant or CPA specializing in veterinary practice management or veterinary clinics can help you analyze these factors. They can also help you understand the impact on your annual bottom line in addition to how it will impact your tax season this year and in years to come. This is also an opportunity to accelerate the related depreciation associated with the expense for your veterinary clinic.
PPP Impact on Veterinary Clinic Taxes
We shared in a recent blog the opportunities the new relief bill brings to businesses. There are aspects of your 2020 business tax filing that can be impacted by what aid your veterinary practice leveraged in 2020. A common area that veterinarians utilized was the Paycheck Protection Program (PPP) loan which provided a cashflow influx for many practices when your future may have been unknown.
According to the IRS, while the forgiveness of the loan is not taxable income, the related expenses paid with the proceeds are non-deductible for income tax purposes. So to estimate net income and projected taxable income, veterinary practices may need to add the amount of the PPP loan forgiveness to their financial statement income. If not planned for, this potential add-back may increase the expected tax liability at filing time.
Deduction Ideas & Tips for Veterinary Practice Management
It is important for veterinarians to understand the opportunities and considerations for their practice when it comes to your company-sponsored retirement plan. Could a more robust 401(k)/profit-sharing plan provide a larger tax deduction while increasing the amount stashed away for retirement? Yes, and it could also provide a nice benefit to your staff at a time when retention is a challenge.
Another area that we all too often find missed deductions is all of your business-related expenses being paid for by the business. Are all of your veterinary expenses deductible, the answer is it depends.
The IRS guidance states that for expenses to be deductible, they must be “ordinary and necessary” in your veterinary business. This language can be very vague and your expenses should be revisited from time to time to make sure you are minimizing your tax liability. The knowledge of experienced veterinarian specialized CPA will prove extremely valuable when it comes to your veterinary practice management.
How Does Pet Insurance Factor into your Veterinary Clinic?
There are many options when it comes to pet insurance and it is just as important for veterinarians to understand the options and what their veterinary clinic will accept. Curious about what the top pet insurance options are, if so here is a link to the Best Pet Insurance options from New York Magazine.
There are many benefits of pet insurance for the pet, the owner and the veterinarian. Pet insurance helps all parties to focus primarily on the quality of veterinary care and makes the cost of that care secondary. We see that when owners have pet insurance more pets receive the care they need. The pet owners feel they are doing the right thing by following the veterinarian’s recommendation for care. And veterinary practice income increases.
Going beyond having the pet insurance brochures in your lobby, we see many veterinary practices offering pet insurance to their staff. By offering it to your staff, they become knowledgeable about the benefits, any drawback and are better equipped to offer advice and recommendations to your pet owners. This in turn helps your veterinary clinic to be seen as having the owner's best interest in mind and should lead to more repeat and potentially referral business.
Working with an accounting firm that specializes in veterinary practices will be your biggest asset when using these programs along with reconciling them with your books. An accounting firm with knowledge of your business and these veterinary specific areas can be instrumental to your future success.
If this all leaves you scratching your head, then it might be time to work with a veterinarian accounting firm to help with your end of year accounting and taxes. The team at JLP CPAs provides general business accounting and tax services as well as specialized veterinary accounting services for veterinarian clinics, hospitals and practices. Finish your year strong and contact one of our veterinarian accounting specialists today.