The business aspects of running a dental practice require daily diligence. Yet, often these important facets can easily take a back seat to clinical demands. Luckily, there’s help. I’m pleased to introduce Andrew Hinrichs as a guest contributor. Andrew is the managing partner of HinrichsZenk+Pesavento, a CPA and business advisory firm, focused solely on dental professionals. In his first article for TDS, Andrew provides some benefits of employing family members in the dental practice.
Employing family members to help out in your dental practice offers a variety of benefits, some of which are purely personal and cannot be quantified on a balance sheet. The tax advantages, however, are clear-cut and could save your practice considerable money. Here are some basics to help you understand this section of tax law.
Extra savings for young workers
Do you have a child in high school or college who is looking for summer work or a part-time school-year job? You may be eligible for considerable savings, if your dental practice is a sole proprietorship or a partnership in which you and your child’s other parent are the only partners. Dentists who fit into this category can hire their children under the age of 18 without paying social security, Medicare or unemployment taxes. Once your child-employee reaches the age of 18, you must begin paying social security and Medicare taxes for them, but you are still free from unemployment tax obligations until they reach the age of 21. You do have to pay income tax withholding, regardless of the employee’s age, but the child will not owe any income tax if they earn less than the amount of the standard deduction. It’s also important to check your state’s child labor laws, and arrange your young worker’s schedule to fit the requirements of these laws.
Employing your spouse
When one spouse works for another, the IRS wants to determine whether a real employee-employer relationship exists. To quote the exact IRS language, “If the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business, and contributes capital to the business,” then what you have is actually a partnership or joint venture. Partnerships and marital joint ventures are slightly different categories under the tax laws, so you’ll want to speak with your accountant about the exact definitions of each. However, if your spouse does act as your employee, following your instructions and not participating in management decisions, you will not have to pay unemployment taxes for him or her. You are, however, responsible for paying social security taxes, Medicare taxes and income tax withholding.
Tax planning should influence each business decision that you make. Employing family members can also save you money on health-insurance tax deductions and have an effect on your pension-plan strategy. To learn more about all the ways you can benefit financially from hiring family members, schedule a meeting with one of our partners. We’ll examine your unique situation and show you how your dental accounting choices can produce savings for your practice.
About the Author:
Andrew Hinrichs, CPA, is the managing partner of HinrichsZenk+Pesavento LLC, a firm devoted to working with dentists across the country. HinrichsZenk+Pesavento LLC is growing thanks to their vast knowledge of the dental industry, focused client service, and ability to help dentists make educated decisions in every financial area of their dental practice. When you want more than an accountant, talk to a dental financial expert. Contact HinrichsZenk+Pesavento LLC today!
Note: This article originally appeared on the HZP Dental CPA Blog on August 14, 2015.
As always, thank you for reading!