BLOG #11
Tax Moves Business Owners Should Make in the 4th Quarter
As the year winds down, the 4th quarter presents a critical opportunity for medical practice owners to maximize tax savings and set themselves up for financial success in the new year. With a few strategic decisions, you can reduce your tax liability and take full advantage of available deductions and credits before December 31. Here are five tax-saving strategies you should consider implementing as a medical practice owner in the 4th quarter:
1. Maximize Retirement Plan Contributions
One of the most effective ways to reduce your taxable income is by contributing to retirement accounts. Whether you offer a SEP IRA, SIMPLE IRA, or a 401(k) plan for your employees (or yourself), making contributions before the end of the year allows you to deduct those contributions on your taxes. For practice owners, this could mean contributing up to the maximum limit to reduce your taxable income while also boosting your retirement savings.
Pro tip: Consider setting up a solo 401(k) if you're a sole proprietor or small practice owner. It allows for higher contribution limits than an IRA.
2. Invest in New Equipment and Take Advantage of Section 179
If your practice needs new equipment, office furniture, or technology, the 4th quarter is a great time to make those purchases. Thanks to Section 179, you can deduct the full cost of qualifying equipment in the year it’s purchased, rather than spreading out the deduction over several years. This can significantly lower your taxable income.
Pro tip: Make sure the equipment is in use by the end of the year to qualify for the deduction in the current tax year.
3. Review and Optimize Your Year-End Bonuses
If you're planning to reward your employees with year-end bonuses, doing so before December 31 can help lower your business’s taxable income for the current year. Year-end bonuses are deductible as a business expense, which reduces your overall taxable profit. It also boosts employee morale and serves as a valuable retention tool.
Pro tip:
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Consider timing the bonuses to fall within the 4th quarter for optimal tax benefits while still encouraging productivity and loyalty.
4. Prepay Business Expenses
If you know that certain business expenses are coming up next year—such as rent, insurance, or subscriptions—consider prepaying them in the 4th quarter. This strategy, known as accelerating deductions, allows you to deduct these expenses this year, lowering your taxable income. Prepaid expenses like malpractice insurance or maintenance contracts can provide immediate tax savings.
Pro tip: Prepaying expenses makes sense if you're having a particularly profitable year and expect a lower-income year ahead, as it helps balance out your tax burden.
5. Perform a Year-End Tax Review
One of the most effective ways to reduce your taxable income is by contributing to retirement accounts. Whether you offer a SEP IRA, SIMPLE IRA, or a 401(k) plan for your employees (or yourself), making contributions before the end of the year allows you to deduct those contributions on your taxes. For practice owners, this could mean contributing up to the maximum limit to reduce your taxable income while also boosting your retirement savings.
Pro tip: A thorough review can also ensure that your business is audit-ready, helping you avoid penalties or missed savings opportunities.
6. Utilize a Backdoor IRA
If you’re a high-income earner, you may be phased out of making traditional tax-deductible IRA contributions or contributing directly to a Roth IRA. However, a Backdoor IRA allows you to contribute to a traditional IRA and then immediately convert it to a Roth IRA, bypassing income limits. This strategy allows you to benefit from the tax-free growth of a Roth IRA.
Pro tip: Be mindful of the pro-rata rule, which could cause taxes if you already have a traditional IRA. Consult your accountant to determine the tax impact of this strategy for you.
7. Defer Income into the Next Year
If you expect your practice to have a strong finish to the year and are looking to reduce your taxable income, you might consider deferring income until the next year. This can be done by postponing billing for services performed in December or delaying end-of-year bonuses you might receive.
Pro tip: This strategy works best if you expect to be in a lower tax bracket next year or if you want to spread income across tax years for optimal tax efficiency.
8. Accelerate Depreciation with Bonus Depreciation
In addition to Section 179, you can also take advantage of bonus depreciation. This allows you to deduct a large percentage (or even the full cost) of eligible assets in the year they are purchased. Bonus depreciation applies to certain new and used property, including equipment, vehicles, and technology, making it a great option for practice owners planning to expand or upgrade.
Pro tip: Bonus depreciation applies to assets with a useful life of 20 years or less, so this is perfect for short-term investments in your clinic.
9. Set Up a Health Savings Account (HSA)
If you have a high-deductible health plan (HDHP), you can take advantage of a Health Savings Account (HSA) to reduce your taxable income. Contributions to an HSA are tax-deductible, and the funds grow tax-free. You can use them for qualified medical expenses at any time, making it a smart financial tool for both personal healthcare savings and tax reduction.
Pro tip: Make sure to contribute the maximum allowable amount to your HSA before the end of the year for the full tax benefit.
10. Consider a Charitable Donation
Donating to charity before the year ends can provide significant tax benefits while supporting causes that matter to you. Business owners can deduct charitable donations up to 60% of their adjusted gross income (AGI) for cash contributions, and up to 30% for donations of appreciated assets. This can help reduce your tax liability while making a positive impact in your community.
Pro tip: Donations of appreciated stocks or property can help you avoid capital gains taxes, giving you a double tax benefit.
Key Takeaways
The 4th quarter is a busy time for business owners, but setting aside time for tax planning can yield substantial savings. At Dream LogiQ, we specialize in helping healthcare professionals navigate their finances with ease—so you can focus on providing quality care while we handle the numbers.
Yes, we are accountants but we are not your accountants and this article does not create an accountant or advisor client relationship. This article is about accounting, financial or tax information and should not be seen as accounting, financial, tax or legal advice. You should consult with an accountant or attorney before you rely on this information. Dream LogiQ assumes no liability for actions taken in reliance upon the content presented on this