Running a veterinary practice is a lot of work. Between providing care on the medical side and managing your business on the administrative side, it can be hard to balance and keep your priorities in order. You want to focus on the animals you love so much, but how can you concentrate when you have so much paperwork to do?
Recordkeeping and tax preparation are two critical administrative tasks that are especially easy to neglect. If you’re only focused on getting from one day to the next, you might be tempted to continually set aside those organizational needs more geared to the future.
By the time tax time comes around, you’ll wish you had put more time into your records and tax obligations on the front end. With accurate and detailed business records for your practice, you can claim all the tax deductions you’ve earned and save more of your hard-earned money.
If you cannot handle accounting on your own, you can get the same or better results by hiring an accountant. An accomplished accountant can improve your recordkeeping processes and help you claim every last deduction you’re eligible for.
Top Tax Deductions for Veterinarians
Tax deductions work by reducing your taxable income. If your expense qualifies for a tax reduction, the amount of that expense is effectively removed from your taxable income, effectively lowering the amount of tax you owe.
Any veterinarian with their own private practice is self-employed, which gives them access to a wide range of possible tax deductions for claiming eligible business expenses. Veterinarians who work for a larger clinic or veterinary hospital will not be able to claim every one of these.
Here are some of the top tax deductions for veterinarians:
1. Small Business Pass-Through Deduction
The 2018 Tax Cuts and Jobs Act created a significant new tax deduction to support small businesses. It is a pass-through deduction offered to all small business owners who file their business income on their personal tax returns. The deduction is limited according to total income.
Self-employed veterinarians will qualify for the new tax deduction if they have a taxable income no higher than $157,000 (or $315,000 if filing jointly). Veterinarians and certain other professions with higher incomes can still receive a limited deduction for incomes up to $207,500 (or $415,000 if filing jointly). Still, beyond that they are not eligible for this deduction.
2. Retirement Savings
The IRS allows you to claim deductions for retirement savings contributions each year. The money you put into your 401(k) or another eligible retirement fund can then be deducted from your taxable income.
The IRS sets a 401(k) contribution limit for each year. For the 2020 tax year, you can deduct up to $19,500 in contributions. People over the age of 50 can deduct additional catch-up contributions up to $6,500.
Contributions limits vary depending on the kind of retirement account.
3. Everyday Operational Costs
It takes a lot to run your own private veterinary practice. Thankfully, you can deduct many of your everyday business expenses from your income. Just make sure you keep a record of each of these expenses.
Here are a few of the things you can claim deductions for:
- Utilities and internet for your office
- Important medical equipment
- Office supplies like pens and staplers
- Any office software you use for business purposes
- Medical supplies like gloves and needles
- Any patient refunds
- Facility maintenance expenses
- Work clothes for your practice
- Other administrative costs
4. Licensing Fees
Any regular expenses required for doing your job should be eligible for deduction as a legitimate business expense. That means you can claim licensing fees and any other examination costs you have to pay to keep your credentials up to date.
5. Malpractice Insurance
Don’t let yourself be caught without a safety net if something goes wrong. Every medical and veterinary professional needs insurance to help cover unexpected legal costs that might come up.
Fortunately, those insurance premiums are part of the cost of doing business as a veterinarian, which means you can claim them as deductible business expenses.
6. Travel Costs
If you go out of town for a conference or another business-related purpose, collect all of your receipts and keep track of them. Any business travel that includes an overnight stay out of town should be fully deductible.
You can claim deductions for the travel costs and lodging, as well as any other conference expenses you incur along the way.
7. Professional Fees and Subscriptions
A responsible veterinarian keeps an eye out for new developments and discoveries in the field. Continuing education and collaboration with other veterinarians are essential parts of your work, so related costs are naturally also deductible.
Deduct membership fees for any professional organizations you belong to, and don’t forget to report and claim deductions for any subscriptions you have for professional publications related to veterinary science.
8. Employee Costs
If you have employees, you can claim deductions for many employee-related expenses and wage costs. Report the money you spent on employees, including salaries and payroll taxes.
9. Charitable Contributions
You can only claim deductions for charitable contributions if you itemize your personal deductions instead of claiming the IRS standard deduction. For most individuals, it’s not worth itemizing deductions.
However, if you make significant charitable contributions, you might be able to save even more on your taxes by reporting those donations and claiming them as deductions.
10. Health Insurance Premiums
Suppose you pay for your own health insurance, and you don’t have the opportunity for coverage through an employer or a family member. In that case, you can deduct your healthcare premiums on your taxes as business expenses.
An employer would typically deduct those premiums from your income without you ever seeing that money, so a self-employed person can effectively do the same and remove those premiums from your income before it’s taxed.
You might also be able to claim a tax deduction for depreciation on a large investment you make as a business owner or individual. Thi
s might be property, stock purchases, or a significant capital investment for your business.
By claiming depreciation, you are deducting the value you’ve lost on that investment over time from your taxable income. One common way individuals use this is by selling off investments at a loss and deducting that loss on their tax return.
Other Pet Owner Deductions
It doesn’t necessarily benefit veterinarians, but pet owners can also write off specific pet-related expenses on their personal tax returns. Suppose you have a pet of your own. In that case, you can deduct pet-related expenses on your tax return, including veterinary costs, if the animal provides some kind of business or health-related service.
Maximize Your Veterinarian Tax Deductions by Working with a Professional
Before you buckle down to start compiling your records and decipher your tax paperwork, consider seeking help from an accountant. Tax law is complicated, and many of the requirements change from year to year. Accountants work to stay on top of the latest so that they can save you as much money as possible.
With a professional helping you prepare and file your small business tax return, you’re free to focus on your business and providing quality veterinary care. Focus on the animals and owners that need you, and let someone else take care of the rest.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. 1-800Accountant assumes no liability for actions taken in reliance upon the information contained herein.