As a private practice practitioner, financial concerns can often feel overwhelming. You might worry about accurately filing your taxes, finding time for paperwork amid a busy schedule, and—perhaps most stressfully—determining how much you will owe the IRS.
Fortunately, dealing with private practice taxes also offers opportunities to take advantage of tax expenses and write-offs. While this can initially seem daunting both emotionally and financially, understanding tax expenses can actually be beneficial and potentially save your business hundreds or even thousands of dollars.
What are tax expenses?
When you run your own small business, such as a practice, you are able to deduct or “write off” business-related expenses from your income to account for the costs that you typically spend to run your business. You are then taxed on the remainder at your usual income tax rate.
To keep things simple, you are saying to the IRS, “I made x amount of money this year, but I already spent y amount to run and grow my business.” X-Y = the amount you’ll pay income tax on.
S Corporation Business Expenses
For S Corporations, expenses incurred under an accountable plan are a tax-efficient way to reimburse employees (including owner-employees) for business expenses. An accountable plan ensures that these reimbursements are not treated as taxable income to the employee and are deductible by the S Corporation.
For S corporation owners, using an accountable plan allows the business to reimburse owners and employees for legitimate business expenses without those reimbursements being treated as taxable income. This ensures the expenses are deductible to the business while avoiding payroll and income taxes that would apply if the payments were treated as wages. Common expenses for an S Corporation owner under an accountable plan include:
- Home office expenses
- Business mileage and vehicle expenses
- Travel expenses for business purposes
- Professional development and education
- Supplies and equipment
- Business expenses paid with personal funds.