If today’s blog post title has you perplexed – don’t worry.  I am not masquerading as an accountant or tax specialist.  I have plenty to teach in my area of billing, coding, documentation and profitable business strategies to keep me busy for a long time.

But since teaching chiropractors to work SMARTER in their business is my mission, and since April 15 is near, I thought this would be a good opportunity to host a guest column on an issue none of us can afford to ignore – taxes!

A final word.  There are several reasons that I chose Jim Bowen, JD to author today’s blog post.  Because of the tremendous asset he has been to my business and finances, I have the utmost confidence he can help you too. He understands taxes (most of us don’t) and from working with scores of DC’s over the years, he understands the challenges we face as chiropractors.  Listen and learn.  I’ll see you next week!

Tom Necela, DC

Why do Chiropractors consistently overpay their income taxes?

Here is a sobering thought this time of year: between 89 and 92% of all small business significantly overstate their income tax liabilities.  My work with DCs has me believe that their rate is probably higher.  The average discrepancy between what my DC clients were paying and what they actual were required to pay is over $22,400 a year.  Over a period of time, this contributes to a widening separation in net income between the well-run business and the average business.

What accounts for this?

When Money Magazine set out several years ago to find out, they came up with a pretty interesting conclusion.  After working with small businesses for over 20 years and hundreds of DC clinics, I can add some additional reasons why the Chiropractic clinic is uniquely positioned to make quite a bit of money every year, but hands over more to the IRS than necessary:

1. Working within the wrong entity. Almost every chiropractic office would be tax-advantaged to operate as either an S-corporation, or an LLC that is taxed like a corporation.  Partnerships have several disadvantages while the sole proprietor suffers from the highest IRS audit rate there is as well as the lowest ability to operate efficiently.   Most sole props realize a 30-50% decrease in tax liability simply by converting to a corporate form and accounting properly within that form. Accountants and tax attorneys already operate this way, while DCs are left on their own
2. Not understanding basic and advance tax planning techniques. Once you have your correct entity, you need to know what to do with it, a subject not commonly taught at your Chiropractic College.  There is not one or two things to employ to achieve Tax Nirvana – it is a sophisticated integration of the clinic operation with the individual circumstances and goals of the clinic owner, that results in a low tax liability within the dictates of the Internal Revenue Code.
3. Not properly characterizing and documenting income and expenses. Think of this as no different from your business.  If you adjust, but do not characterize correctly or document sufficiently, you will not get paid.  The same adjustment characterized and documented correctly will get paid.  The ability to deduct a private school, children’s braces or a new Lexus also depends upon characterization and documentation.  As in health care, learn the rules and benefit from them.
4. Relying on an accountant. This is where Money Magazine comes in:  Money sent out a hypothetical tax return to 46 accountants and received…46 different amounts due!  Tax liability ranged from $36,320 to over $94,000 – for the same return.  The reason was obvious: during the season, accountants prepare an average of 6.7 returns a day – not much time for careful consideration of your circumstances.  A CPA is vital to preparing and submitting your returns, but they are just relying on the p/l you submit to them and you cannot rely on them for the lowest tax liability and audit rate that you deserve.
5. Not having a tax advisor or preventative audit. A tax and accounting review prior to sending your material to your accountant (or better yet, earlier in the year) is what makes the difference.  You should be looking for ways to reduce your chance of being audited, as well as keeping more of your earnings.  This takes pro-active planning with an advisor that understands law, accounting, business planning and has a detailed understanding of the Chiropractic business.
6. Not looking for improvement. DCs are experts in trying new ways to increase patient visits, collect higher fees and extending that PVA, but they do not take even a few minutes to see how they can reduce their taxes.  Inertia and denial are two main reasons, but overall, it is the lack of understanding that something can actually be done about it.  One of the basic rules of business accounting is:  It is not the amount of money you make that determines your tax liability, but how you take and account for that money that matters.

What can you do now about your 2009 taxes?  Plenty, as it turns out.
First: tell your accountant to file an extension.

Second: Give me a call or email your 08 taxes (09, if prepared).

Third: Take advantage of a15 minute, free consultation to see how far off you are and discover out the easiest way to correctly file your returns.

I review hundreds of returns for Chiropractors every year and it is rare that I find one that cannot be significantly improved.  With my background and experience in law, accounting, business planning along with an extensive knowledge of the DC practice, I provide a unique perspective to you and your clinic.

Interested in learning more?  Take a look at www.bowen.us to get a better idea of how I can help you…this year!

Remember, it is not too late to lower your 2009 taxes.  It just takes action.

James M. Bowen, JD, is the owner of Bowen, Inc.: a for-profit corporation dedicated to strengthening the chiropractic community by helping Doctors of Chiropractic become more efficient.  His consulting service provides efficient DC operations, satisfied and energized owners, increased compliance and guarantees increased net income – year after year.

Mr. Bowen can be reached at 406.370.9900, his email is jmb@bowen.us and his website is www.bowen.us

Related posts: