As an optometry practice owner, your financial decisions can have a significant impact on your bottom line. One area where you can make smart moves is by employing family members and taking advantage of available tax credits. These strategies not only reduce your tax liability but also provide opportunities to reinvest in your practice and support your loved ones.
Employing Family Members: A Win-Win Strategy
One of the most overlooked tax-saving strategies is employing your family members in your optometry practice. Under current tax laws, you can pay your children or other family members a reasonable wage for legitimate work they perform. This reduces your practice’s taxable income while also shifting income to family members who may be in lower tax brackets.
For example, you could hire your child to assist with tasks like filing, cleaning, or even managing your practice’s social media presence. As long as the wages are reasonable and the work is documented, the payments are deductible as a business expense. Plus, your child can use their standard deduction to avoid paying taxes on the income.
If you pay your child less than $15,000 in 2025, they are not required to file a tax return.
However, if you choose to file one, the income is considered 'earned income,' which makes them eligible to contribute to a Roth IRA. This is where the real power of this strategy comes into play. By contributing the maximum $7,000 annually to a Roth IRA for the next 10 years, your child’s retirement account can benefit from decades of compound growth.
Assuming an average annual growth rate of 7%, those contributions alone could grow to approximately **$1,549,635** by the time your child retires in 50 years. This sets them up for long-term financial independence while also teaching them valuable lessons about saving and investing.
Leveraging Tax Credits: Free Money for Your Practice
Tax credits are one of the most effective ways to reduce your tax liability because they directly reduce the amount of tax you owe, dollar for dollar. Here are two credits that can make a big difference for your optometry practice:
- Work Opportunity Tax Credit (WOTC): This credit rewards businesses that hire individuals from certain target groups, such as veterans or long-term unemployed individuals. You can receive up to $9,600 per eligible employee, depending on the group.
- Disabled Access Credit: If you make your optometry practice more accessible to individuals with disabilities, you may qualify for this credit. For instance, installing ramps or modifying restrooms could make you eligible for up to $5,000 in tax credits.
Combining Strategies for Maximum Impact
By employing family members and taking advantage of tax credits, you can create a comprehensive tax strategy that benefits your practice and your family.
For example, you could hire a family member to oversee accessibility improvements in your office, making your practice eligible for both the wage deduction and the Disabled Access Credit.
Conclusion
Employing family members and leveraging tax credits are practical ways to reduce your tax burden while investing in your optometry practice and your loved ones. These strategies require careful documentation and planning, but the rewards are well worth the effort. In the next post, we’ll explore advanced tax moves, including capital loss strategies and inventory deductions, to help you save even more. Stay tuned!
