Should Your Med Spa and Dental Business Be Charging Sales Tax?

Here’s the deal—sales tax is annoying. But, more than that, it is confusing. Honestly, what tax thing isn’t confusing? Just send a bill, IRS.

What is sales tax?

A sales tax is a consumption tax imposed by local governments on the sale of goods and services. Sales tax is charged at the time of sale to the customer and then remitted to the proper jurisdiction.

Should you be charging sales tax?

Any business that sells “tangible goods or services” (i.e., toothbrushes for dentists or skin care for a medical spa), is, for the most part, required to collect and remit sales tax. The amount charged for sales tax varies by state and locality. The best way to determine your requirements for sales tax is to, first, ask your certified public accountant (CPA). Second, if you’re not getting a clear answer from your CPA, consider calling your state’s sales tax office. Surprisingly, they can be very helpful in determining which goods or services you sell might be taxable.

So… now what?

If it’s determined that you’re selling goods or services that are eligible for sales tax, you’ll first need to obtain a sales tax registration from your state. You’ll then begin charging your customers the required rate of sales tax at the point of sale so you can remit the taxes online, usually monthly.

You’ll also want to obtain a resale certificate, which you’ll provide to the vendors who sell you the products that are then resold to your customers. Because sales tax should only be charged once (to the end user), you don’t want to pay sales tax to your vendor just to have your customer pay it again. The last thing you should want is to pay taxes twice.

What about use tax?

Sales and use taxes tend to go hand in hand. Use tax is assessed when you purchase something online or from an out-of-state vendor and you were not charged sales tax as a result. The rate is usually the same as the sales tax rate. The key here is to review your invoices and confirm the appropriate sales tax was charged.

What’s the bottom line?

Sales and use tax audits are not fun and can be a little scary. To protect your business and remain compliant, take some time to be certain about your sales and use tax exposure.

Talk to your CPA, call your state sales tax department, or reach out to Full Cycle CFO, who will direct you to the right place.

5 hidden tax opportunities for Med Spa and Dental Professionals

As an expert dedicated to alleviating the tax burden for med spa owners and dentists through legal means, I’ve had the privilege of collaborating with various med spa and dental professionals over the years. Through this experience, I’ve observed that nearly 95% of them end up paying more in taxes than legally required due to a lack of utilization of opportunities provided by the U.S. tax code.

Minimizing Tax Expenses

Put simply, if your combined federal, state, and self-employment taxes exceed 30%, you’re likely overpaying. Many med spa owners and dentists miss out on opportunities to legally reduce taxes, resulting in substantial financial losses. Cumulatively, these overpayments over the years can surpass the million-dollar mark for some practitioners.

The good news is that tax overpayment is treatable. If you’re like most med spa owners and dentists, you are subject to substantial annual tax payments. What might be overlooked is the potential to legally save a portion of these payments. The following strategies, all compliant with tax laws and codes, can be employed by following specific protocols and treatment plans.

1. Optimal Business Structure Selection

One primary reason for med spa owners and dentists overpaying taxes is the selection of an inappropriate business entity. Choosing the right business structure is crucial yet complex. Upon analyzing tax returns, it’s common to find that practitioners operate under a single entity, often the wrong type. Successful practices often benefit from managing operations through multiple entities, even though this adds complexity. Corporate structures offer advantages like income shifting, a legal strategy to lower taxes by reducing taxable business income. For instance, forming two entities with different year-ends, such as an “S” Corporation and a “C” Corporation, allows for effective income shifting and potential tax savings of up to 15.3%.

2. Maximizing Medical Benefits

Medical benefits represent an often overlooked area for smart tax strategy. Failing to use pre-tax dollars for medical expenses can result in a higher tax bill and lower business profits due to missed deductible business expenses. Corporate structures offer more options than sole proprietorships, allowing for the establishment of Medical Expense Reimbursement Plans. These plans enable the write-off of medical bills as business expenses.

3. Strategic Retirement Plan Selection

Many med spa owners and dentists struggle to save adequately for retirement. Effective retirement planning begins with a budget and consideration of the most suitable plan. Profit-sharing plans, offering flexibility in annual contributions, are recommended for med spa and dental professionals. For instance, a profit-sharing plan with a 401(k) provision allows contributions ranging from zero up to $56,500 annually if you’re age 50 or over.

4. Employment of Family Members

Taking advantage of IRS-sanctioned strategies, such as employing your children, can provide payroll tax deductions and financial benefits for both the business owner and the family members. Children under 21 and under 18 are exempt from certain taxes, making this strategy particularly advantageous for family-owned businesses.

5. Proactive Tax Planning

The key to tax savings lies in proactive tax planning. Unlike tax preparation, which organizes past events, tax planning involves strategic actions in active tax years. Med spa owners and Dentists can structure their financial affairs to minimize tax liability by meeting with their tax advisor within 90 days of filing the previous year’s tax return. This proactive approach allows for a comprehensive review of various financial aspects, identification of potential issues, and the implementation of tax-saving strategies.

In conclusion, med spa owners and dentists can significantly benefit from a well-thought-out tax strategy that incorporates these legal and effective measures. By taking a proactive approach, practitioners can minimize tax liabilities, maximize opportunities, and ensure financial well-being in the years to come.