Tax Advice For Dentists

Are you a dentist, orthodontist, or other dental professional? If so, we have some tax advice for dentists. In addition, the ATO has put together some guidance on the topic of taxes and dental practices. So let’s explore what it means to be a dentist and how you can take advantage of tax laws that are favourable to your profession!

Every profession has its own tax season, but for dentists, this time is different. Dentists are required to comply with both federal and state taxes, which can be complicated even when you're not an accountant. For example, dental procedures may require the dentist to charge separately for services or materials in order to take advantage of certain deductions.

To make matters worse, there are often differences in what's deductible federally versus at the state level that create a confusing maze of rules that must be navigated by your average dentist. The good news is that we have you covered! Here are some tips on how to navigate these confusing waters so you can get back into practice sooner rather than later!

Tax Tips For New Dental Contractors

You’ve just landed your first contract position as a working dentist, and you might be diligently brushing up on your clinical notes and polishing your shoes, but have you checked that your taxation toolkit is in order?

While starting as a contractor might seem relatively simple, it’s important to have your taxation reporting structures in place.

Health professionals starting out in private practice are usually very focused on the clinical aspects of their new job because that’s what they’ve been trained for, but sometimes it’s easy to overlook financial reporting obligations.

Contractors need to register for an Australian Business Number (ABN) — the best way is online via the Australian Business Register website (abr.gov.au).

Yet, you don’t want to face fines from the Australian Taxation Office for incorrect reporting.

They also need to consider whether to register for GST, Lisa says. GST registration is voluntary where business turnover is less than $75,000 and compulsory where business turnover is more than $75,000 a year.

Regardless of whether you meet the income threshold, it’s usually beneficial for health professionals to be registered for GST.

Why should I register for GST?

The main reason to register for GST is to enable you to claim back GST credits on operating costs when the GST credits are greater than the GST collected, and you are eligible for a refund.

It’s important to have a basic understanding of the concept of the GST. Most health services aren’t considered “taxable supplies”, which means most income is GST-free, but some exceptions exist. For example, not directly patient-related services, such as providing third parties reports, attract GST.

What Does Being Registered For Gst Mean For Me?

If you register for GST, you’ll need to complete a Business Activity Statement (BAS) and lodge it with the ATO, usually quarterly. Completing the BAS is relatively straightforward for most contractors as the dental practice usually summarises the information they are required to include.

How do I lodge my BAS form?

When registering for GST, contractors can elect to lodge BAS forms manually or electronically via the ATO business portal. The BAS is usually due 28 days after the end of each quarter but lodging it via an accountant provides additional time to lodge.

What Services Can I Claim Gst On?

Contractors can claim GST credits on expenses such as the service fees they pay to the practice, but it is important to be able to substantiate these claims with receipts and documentation.

Lab fees, insurance subscriptions/memberships, tools, and other expenditures incurred in performing your dental services should also be included in your BAS to claim for GST credits.

Who Will Pay My Income Tax?

As a contractor, you are required to pay your own tax rather than have it withheld by the practice.

Contractors are liable for Pay As You Go (PAYG) instalments when they lodge their BAS, and this is calculated for them by the ATO. It’s a way of incrementally paying your expected income tax liability at the end of the year — we see it as pre-paying your tax.

If you are a contractor not registered for GST, you will be required to use an instalment Activity Statement (IAS) to make PAYG instalments. The PAYG instalment is calculated by the Tax Office and is an estimate based on your last lodged tax return. In that first year, the Tax Office won’t know you’re earning contractor income, and therefore PAYG will be payable to “catch up” for this.

So remember that even though the Tax Office isn’t asking you to pay as you go along, you will need to be saving some of the cash you are receiving to pay for your income tax later when you lodge your return.

You also need to remember that your BAS doesn’t replace your annual income tax return, which you will need to complete at the end of the financial year.

Being set up to be a contractor is relatively straightforward, but you need to ensure you have the right tools in place from the beginning.

Tax Planning for Healthcare Professionals

The fact that many medical professionals have to pay substantial sums of income tax is without a doubt the primary source of anger for them. Unfortunately, the tax planning alternatives accessible to dentists and doctors are extremely constrained; as a result, you need to maximise the efficiency of your tax planning and make the most of the tax-effective wealth building tactics that are at your disposal.

The subject of how to divide one's income with one's spouse or other members of one's family is one that comes up very frequently for medical specialists who work in private practise. This enquiry is motivated by the fact that medical professionals, such as doctors and dentists, are subject to a significant amount of income tax.

Income Sharing Between Dentists And Clinicians

The goal is to reduce the amount of taxable income to a level at which the marginal tax rate is lower than the rate that you are currently paying, which is normally 47%. This can be accomplished by transferring income to a spouse or dependent who has a lesser income.

Be wary, however, because the Australian Taxation Office conducts a significant amount of audit work in this sector, particularly among professionals who misuse it to lower the tax responsibilities of the spouse with the better income-earning potential.

Active and passive income are the two categories into which you might be able to divide your earnings. Earning money without actively working for it is referred to as passive income, and it might come from investments such as shares or an investment property. It is normally permissible in the eyes of the ATO for you and your spouse to divide this revenue between the two of you.

Holding investment assets in the name of low-earning taxpayers, in the name of discretionary family trusts that can distribute income to low-earning taxpayers, or even in the name of a company, which is taxed at a flat rate of 30%, are all common ways to achieve passive income splitting. Passive income splitting is typically accomplished through the use of family trusts.

Active income is income that you have earned as a result of your own efforts (for example, the fees you charge for private services), and the division of active income is subject to stringent tax regulations. As a result, it is more often known as Personal Services Income, or PSI for short.

According to section 84-5 of the Income Tax Assessment Act of 1997 (ITAA97), personal services income (PSI) is defined as ordinary or statutory income that is acquired primarily as a reward for an individual's personal efforts and talents. The ATO uses a straightforward method to determine whether or not a person's income is "primarily" the result of their own effort and skill: you label this income as PSI if it accounts for more than half of your total income. It is sometimes unimportant how this money was produced, whether as a solo proprietorship, through a trust, or through a corporation structure.

The fundamental principle states that you are not permitted to share the fruits of your own labour in any way. The reason for this is that the tax office believes that you earned the money, which is why you are responsible for paying tax on it.

As a result, there are very few chances to divert cash away from the medical practitioner and instead share it with other people or corporations. In general, you are required to report every dollar of income that you make on the tax return that is specific to you as an individual.

When you have a private practise that has numerous employees or a general practitioner or dental clinic that also works with independent contractors, the utilisation of a service company presents you with a better possibility to split your income.

Unfortunately, despite the fact that this is a very complicated area of taxation that calls for the guidance of a tax professional, there are still a great number of instances in which doctors and dentists have received wrong tax advice.

Tax-efficient Wealth Creation Techniques For Medical Professionals And Dentists

For medical professionals, there are a few different ways for building wealth in a tax-efficient manner, and when these strategies are combined, they can produce quite successful outcomes.

• Superannuation.   Given that superannuation continues to be an exceptionally tax-efficient investment vehicle, it makes perfect sense to work towards amassing the maximum amount of tax-efficient retirement benefits that may be accumulated for each spouse, which is currently set at $1.6 million.
• Negative gearing. You can leverage your high income in a way that is tax-effective by employing this tactic early on in your career, which can be a great strategy. However, rather than concentrating on the potential tax benefits, you should make it a priority to acquire high-quality assets that are expected to rise in value over time, and you should also devise an exit strategy to pay off your existing debts.
• Family trust – strategies for savings and investments. Family trusts provide advantages for tax planning and asset protection, as well as a distinctive setting in which to organise financial savings and investment strategies.
• Investment bonds. Investment bonds are often associated with fewer investment opportunities but might function as a more straightforward alternative to family trusts. Despite this, they require little upkeep and, after ten years, they provide great tax benefits.
• Tax planning is an essential component of the strategic guidance that we provide to medical professionals. We are able to collaborate with your current accountant and provide an in-house service that is fully integrated in terms of tax and accounting.

Are Dental Costs Tax Deductible?

It's possible that this is a query that's always crossed your mind: can I deduct my dental expenses on my taxes? If you live in Australia, the only way you can deduct medical expenses on your tax return, including those for dental work, is if they are directly related to the source of your income.

If you want to make a living as an actor or actress, a performing artist, or a model, your appearance is extremely important. This indicates that your dental charges are regarded as important to the performance of your job duties and are, as a result, deductible on your taxes.

The topic of tax expenses, such as what constitutes a "private expense," will be the focus of today's conversation.

I will go over the circumstances under which you can deduct dental expenses. Following that, we will talk about the kinds of costs that are regarded indispensable to your profession. In the end, I will go over who you need to go to in order to confirm these costs.

Please note that the information included within this post has been sourced and referenced by professionals, and that it is intended solely for the sake of providing informational and educational value. Since we are unaware of the specifics of your situation, it is in your best interest to speak directly with either your dentist or your tax preparer in order to obtain direct counsel and guidance. It is also highly suggested that you do so.

The Definition of "Private Expenses"

Anything that is not considered to be "work-related" can be considered a "private expense." These costs, therefore, will differ from one sector of the economy to another based on the nature of your work. But to boil it all down, a "private expense" is anything that is unconnected to the money earned from your occupation and is considered superfluous for that income.

Under the title "What Is Considered Essential to Your Job or Role?" I will provide a more in-depth discussion on this topic later. But first, let's talk about the jobs that count dental expenses as "work-related" rather than "private." I'll start with doctors and then go on to dentists. Visit the webpage of the Australian Taxation Office (ATO) under "Business Tax Deductions" if you are interested in learning more about work or costs related to claims.

When to File a Dental Cost Claim

"Grooming expenses" is another name for dental care fees. Due to the fact that these are frequently deemed "private costs," the Australian Taxation Office (ATO) is highly stringent when it comes to claiming them as a deduction. Therefore, if the following conditions are met, you may be eligible to deduct dental costs from your taxable income:

It is necessary for the part you play (that is, it is directly related to the income that you are receiving).

In general, everyone who works in the public eye wants to seem and feel as though they have a good level of personal hygiene.

In several of these roles, it is possible that others will judge you based on how well-presented you appear to be. On the other hand, this indicates that in many of these jobs, your employer will provide you with a stipend to cover the costs of personal grooming. As a result, any additional expenses incurred for grooming are regarded as "private expenses," and as a result, they are not tax deductible.

Therefore, the ATO considers only a very small number of occupations to be truly necessary for the provision of grooming items or services like dental work.

Dental Work Tax Deductions for Work-Related Services

I have provided a rundown of the conditions that the ATO necessitates in order to assist you in determining whether or not you are qualified to make a claim for a tax deduction related to your employment for dental work.

In order for your dental work to be eligible to be deducted from your taxes, you need to have:

• A model, an actor or actress, or a performing artist are examples of professions that require regular grooming expenses because of their roles
• A clear correlation between the occupation that brings in money and the expense of the dental work that needs to be done
• You were responsible for paying for all of the job yourself, and your employer did not reimburse you for your efforts
• A receipt or invoice for the dental procedure is required to be preserved as proof of purchase for a period of three years after you have filed your tax return.

The appearances of those playing these roles need to be kept up or even altered for the sake of the roles themselves, which is something they all have in common. That is to say, the number and quality of their teeth has a direct bearing on the amount of money they may make, as the number and quality of their teeth influences the number of positions they are able to get.

For the purpose of a film, for instance, a significant number of Hollywood celebrities have altered the appearance of their teeth. To prepare for his portrayal as Tyler Durden in the 1999 film Fight Club, Brad Pitt had a fake section of his front teeth that covered a chipped tooth removed by a dentist.

In the 2018 film Bohemian Rhapsody, Rami Malek played the role of Freddie Mercury, during which he wore prosthetic teeth to imitate Mercury's overbite. In a similar vein, Johnny Depp sported golden crowns in each and every Pirates of the Caribbean film.

The following is a list of further actors who, in order to play a role in a film, have had dental work performed. It is also important to point out that the Australian Taxation Office (ATO) has disclosed that in the past a significant number of taxpayers have utilised;

To attempt to claim their medical expenses, such as dental work, they will use the "other deductions" part of their tax return. For instance, some taxpayers had claimed the expense of all of their dental procedures that they had done before they had a job.

They asserted that in order to get work, one needed to have a pleasant smile, and as a result, all expenses were tax deductible. On the other hand, this is not at all the case, and the ATO has refuted this assertion.

Deductions for "other" expenses still need to be directly tied to earning revenue (for example, from an investment property, such as a granny flat that is being rented out). As a result, the ATO did not allow any of these claims to be made in any way because they are considered a "private expense."

What is Deemed Crucial to Your Position or Job?

Whatever is regarded as necessary for the performance of your function or task is something that;

Regardless of the work that you do, it is vital for you to have in order to get paid, and it is required for you to accomplish your job.

This means that the deductions you are eligible to claim are directly connected to the income that you bring in, such as the costs associated with:

• Transportation to and from work, including vehicles and travel
• Services including clothing, laundering, and dry cleaning (for work clothes only)
• A home-based workplace
• Self-education, supplemented only by formal training as necessary for the role
• Items necessary to the performance of your job, including tools, equipment, and other things
• Any additional costs associated with the job.

Your tax return should include a section labelled "work-related expenses" to account for all of these costs. On the website of the Australian Taxation Office, you may find detailed information regarding the deductions and credits that you can and cannot claim for your particular line of work.

Who to Contact for Confirmation of These Expenses

It is essential to take note that all of the information that is shown in this post is accurate according to the website of the Australian Taxation Office in the year 2020. As a result, it is open to modification.

It is solely intended to serve as a source of general information and in no way constitutes professional advice in the areas of finance or accounting. As a result, if you want to make sure that there are no hidden costs, I recommend that you talk to either a;

• Qualified tax accountant, or
• CPA (certified practising accountant, who is a trusted financial advisor).

You can get assistance with figuring out exactly how much of a tax deduction you are eligible to receive for dental expenses from either of these two professionals. This is because the amount of the deduction you are eligible to receive is entirely dependent on your individual circumstances.

Conclusion

Dental expenses are not deductible for tax purposes unless you have a job in which people judge you solely based on how you present yourself, in which case they are deductible. Sadly, opportunities for employment in this field are extremely scarce.

These kind of costs are referred to as "grooming expenses" by the Australian Taxation Office (ATO). On the other hand, they have a highly selective policy regarding who they will provide these to. This is due to the fact that many industries, such as working in the media or as a flight attendant, need their employees to portray themselves in a professional manner.

On the other hand, if you work in one of these jobs, your employer will provide you with a budget for personal grooming expenses. As a result of this, the Australian Taxation Office will consider any additional grooming expenses to be "private expenses." The following categories of people will be eligible to deduct dental expenses from their taxable income:

• Performing artists.
• Actors/actresses, or
• Models.

This is due to the fact that each of their occupations contains the following components:

The costs associated with personal grooming are necessary since individuals are required to keep up their appearance or even alter it for their jobs. Additionally, there is a direct correlation between the cost of dental work and how they earn their income, which means that the appearance of their teeth will have an impact on how much money they make. This is because dental work can be expensive.

They are responsible for all costs associated with dental care and will not seek reimbursement from their employer.

In the past, there have been taxpayers who attempted to deduct the cost of their dental work under the category of "other expenses." These, for example:

• They were referred to as "private expenses" since they were unrelated to the generation of money, and
• The ATO has completely disallowed this claim.

Therefore, it is essential to keep in mind that if the ATO has faith in you:

If you filed your taxes honestly but made an honest error, they will just disallow the claim.

If you have deliberately made a false claim, particularly one for a significant amount of money, they may decide to charge you with a fine.

It is important to keep in mind that in order to qualify for tax deductions, the money you spent cannot be considered "private costs." Visit the page on the ATO website titled "Deductions" to learn more about the deductions you can claim as well as those that you cannot claim.

Visit their Penalty page for more information about the penalty that can be incurred for filing a tax return that is inaccurate or misleading. The Australian Taxation Office (ATO) now provides an app called myDeductions that makes it simpler for you to keep track of your income and expenses.

It is imperative that you keep in mind that the Australian Taxation Office (ATO) wants receipts for any costs that you claim, and they will check. In addition, they now have the authority to verify the records of your bank account in addition to other sources in order to guarantee that all of the claims you have made are really truthful.

As a record of the spending, you must therefore ensure that you maintain all receipts for a period of at least three (3) years after you have submitted your tax return.