Taxes are a fundamental part of everyone’s life. Whether you own a huge company, run a small business, or provide services on a contractual basis, filing your taxes is mandatory. Among all these, the dental industry needs to keep a keen eye on taxation the most. In Australia, dentists pay more taxes than other working individuals on average.
However, since the profession is a dynamic one, it is not the same for each dentist. It depends on the kind of business structure or contractual arrangement that you have.
Everything You Need To Know About Dentist Accounting
Common Business Structures for Dentists
There are two common structures for dentists:
If you have registered yourself as a dental care company, then the Australian taxation office is going to treat you as a separate business entity and the rules for businesses are applied to you as per the details of your company.
Most dentists work as sole traders. This means working for several dental care organizations on a contractual basis.
In both kinds of business structures, GST is applied depending on various factors.
Do Dentists Pay GST?
The typical answer to this question is “it depends”. Generally, a business or a company is required to register for GST once its GST turnover is more than the $75,000 threshold. If you are an employee type of dentist, you do not need to worry about this as you are simply earning a salary. However, most dentists under contractual arrangements either as a sole trader or through a business structure will earn more than $75,000. This is why GST registration is required.
How Do Dentists Account for Earnings and What is the Main Tax Issue?
Being a dental professional, your taxes need to be up to date with extensive bookkeeping and accountancy. So having an accountant with proficiency is always beneficial. However, you need to be aware of the potential tax liability as well as some basic taxation and deduction areas yourself.
Since the GST threshold is $75,000 for most kind of business structure, you need to ensure that your GST is filed once you reach the limit. Once you have registered yourself as a GST taxpayer, you need to report on a regular basis, generally after every quarter.
GST in Contractual Services
If you are receiving fees as commission-based, you have dental GST liability. For instance, if you receive fees from a dental practice based on a percentage of the patient fees, , you are required to report any GST component of the fees with the ATO. On the other hand , when you pay service fees to other dental practices, you can claim back any GST components on the paid service fees.
Personal Service Income Issues
Personal service income is when you have earned money from personal exertion of labour or services. For dentists, this income is always taxable. While some dentists try to divert personal service income to their spouse or other relatives for lower tax rates, this idea may not work due to the personal service income provisions
The Australian Taxation Office is quite sensitive about the issue and keeps a thorough check to identify and penalise such activities. So your PSI must be included in your tax return without any ambiguity.
Bookkeeping And Record-keeping
When it comes to business, whether a contractual job or a small company, bookkeeping plays a pivotal role in your success. So being a sole trader, you need to be extra smart in this area as well.
If you do your own bookkeeping, you have two options to choose from:
Traditional bookkeeping means relying on paper and jotting everything down on time. If you choose this method of record-keeping, make sure to keep the record safe and secure.
There are multiple accounting software and applications available that come quite handy when it comes to tracking your income and calculating the taxes. From mobile applications to system software programs, you may go for whatever suits your convenience as a smart bookkeeper.
However, keep in mind that using technology is always more reliable and less prone to making mistakes as compared to the traditional method.
Some Other Bookkeeping Strategies:
For efficient bookkeeping, you may employ the following practices.
Separate Business Bank Account
A separate account helps you keep a track of your income easily. In this way, you manage your tax returns alongside having financial security more efficiently.
Keep All Documents for Future Substantiation
Documentation is key to having accurate tax returns and claiming deductions and write-offs once the tax time comes. So impeccable documentation is one of the essential strategies.
Potential Deductions for Dentists
Being a contractual dentist, you are entitled to various tax deductions. Let us have a look at some of the most common deductions that you may claim.
1. Overnight Travel
This includes when you travel away from home and stay overnight specifically for work-related errands and incur meal, accommodation and incidental expenses without being reimbursed.
2. Parking and Tolls
When you incur parking and toll taxes while travelling for work-related jobs, the amount you spend is deductible.
Have you spent money on education in order to acquire skills mandatory for your job? You may claim deductions if the skills are related to your current profession and potentially lead to an increase in your income.
4. Union Fees or Professional Subscriptions
You can claim a tax deduction on any kind of subscriptions or fees related to associations or bodies or work relevant to your profession.
5. Magazine/Journal Subscription
Expenditures on any magazine or journal subscriptions that are specific to your profession can be claimed in tax deductions as well.
You may claim immediate deductions when you purchase any equipment. There are more generous depreciation rules over recent years and business can potentially claim the full cost as soon as the equipment is installed and ready for use.
7. Conferences and Seminars
Expenditures, in order to attend conferences and seminars or other workshops related to your income-earning activities, can be claimed for deductions.
8. Telephone Expenses
You can also claim telephone expenditures if used only for income-related purposes. However, you must provide proof along with all the details of how much time is spent on calls.
9. Home Office Expenses
If you have been working from home and spending additional money on internet, stationery, cleaning and furniture etc. you may claim it as tax-deductible in your return.
Tax Planning and Wealth Creation
Being a sole trader, it is essential to plan your taxes and file them appropriately with the help of an accountant. A few key strategies in this regard should be:
Identifying potential deductions early
A dentist, specifically one who works on a contractual basis, has several opportunities to claim tax deductions. When you identify such deductions early, it becomes easier to keep a track of all the records and substantiate your claim with evidence as the time comes.
You need to plan everything ahead and ideally in place before the end of a financial year to avoid any last-minute complications.
For wealth creation, you may establish a family trust or investment holding company to ensure that you can save money and claim rightful deductions.
Why Choose Professional Tax Accountants?
Professional tax accountants analyse your financial position and come up with strategies that enable you to minimise your tax deductions. This is why, it is important to let the experts do the job while you focus on your dental practice.
Get in touch with the professionaltax accountants here at IJ&EA and allow us to manage your dental accounting in the most efficient manner possible.