Tax Strategies Archives

In early April, the Wall Street Journal published an article that featured PDS member and multi-store owner, Cliff Holt of Hurricane Family Pharmacy. Cliff’s is one of the many companies taking advantage of the new tax deduction for pass-through businesses. These companies make up the majority of U.S. businesses and include entities like sole proprietorships, partnerships, and S-corporations. Pass-throughs are aptly named because profits essentially “pass through” to owners and are taxed at the individual level, instead of paying corporate taxes plus individual taxes on top of that after money is distributed to owners.

We’ll get into how pharmacy owners are using this new deduction below. Let’s unpack this a bit more.

What is the New Tax Code?

This new deduction effectively lowers the maximum individual income tax rate for millions of business owners from 37% to 29.6%. One of the caveats that come with this break is that it is not available for higher income professional services. There is a taxable income threshold of $157,000 in individual income or $315,000 for those filing jointly.

How are Businesses Using It?

Many businesses who have reached the income threshold have been getting crafty with how they make their business qualify for this deduction, outside of increasing their charitable and retirement-plan contributions thereby reducing their taxable income. A new method has emerged that will allow these businesses to expand the reach of the new tax code.

This new method is often referred to as the “Crack and Pack,” and involves separating their business into different entities to be able to claim the deduction on one part of their business that does not reach the threshold, thereby effectively benefiting from the break. If businesses can restructure themselves that disrupts their operations in a relatively minor way, this 20% tax break would be a powerful benefit.

What Does This Mean For Pharmacy Owners?

Showing the ingenuity and willingness to jump on opportunities that is common among high-performing PDS members, Cliff Holt has joined those businesses who have taken on restructuring to leverage this deduction. Cliff owns four pharmacies that get more than 90% of their revenue from selling medicines, nutritional supplements, gifts and other retail products. However, his pharmacies provide exempt health services (flu shots and vaccinations) and also employs two registered nurses, so his business would miss out on the 20% deduction. Unwilling to take the all-or-nothing approach, Cliff was able to restructure his business into two companies so he can continue providing health services and enjoy the benefits of the new tax code.

Cliff’s tax advisor, Tom Wheelwright of WealthAbility LLC in Tempe, AZ and a featured PDS Super-Conference speaker, is optimistic that the IRS will allow pass-through businesses to claim the deduction even while a small amount of their revenue comes from health or other excluded services. Tom, himself, has recently split his own CPA business from his education business to take advantage of the new 20% deduction. For more details, here is a video of Tom’s tax presentation from stage at the 14th annual PDS Super-Conference in Orlando in February 2018.

It must be noted that this method isn’t for all pass-through businesses. Some find that the cost of restructuring alone outweighs or marginalizes the tax benefit. Also, this deduction expires in 2025 but could be exposed to legislation that will aim to reduce or eliminate this gain.

You can find the original Wall Street Journal article here.

Adapt or Go Home

As a pharmacy owner, Cliff has adapted to the changing pharmacy landscape and leveraged his opportunities to take back of his business what others would give away.

This is the critical mindset that we write about in our 2018 Pharmacy Industry White Paper. This free download will show you what you should be doing NOW to make sure your pharmacy not only survives but thrives. Read this state of the industry as soon as you’re able so you can learn how to:

Offer better patient care
Have more professional fulfillment
Obtain higher profits
And, increase the valuation of your business.

Click here to access the Pharmacy Industry White Paper Immediately.

Pharmacy Resolution: Use Smarter Tax Strategies

Make 2016 the year that you stop giving the government more money than you have to! When facing financial difficulty, we often think about ways to increase our income, but what about saving more of the money we have already worked so hard to earn? There are countless ways to save money on taxes that you don’t even know exist. That’s why “Use Smarter Tax Strategies” is number three on our list of Top New Year’s Resolutions for Pharmacy Owners in 2016.

Most tax accountants and CPAs use fifteen to twenty strategies when preparing a client’s tax return, but that is not even a fraction of what the tax code allows. When properly documented, more than 400 legal deductions are available to you! It is almost guaranteed that you are paying more taxes than you are required to. If you took advantage of all the deductions available, you could be putting more cash back into your business, a rainy day fund or toward your next family vacation.

The majority of a tax professional’s work occurs in the two to three month period culminating on Tax Day. They may have to prepare several hundred returns in a short period of time, so they often “staff up” with temporary employees and work 80-90 hours each week just to stay afloat. Under those circumstances, they can’t possibly provide you with the level of research and analysis you need to maximize your savings.

Additionally, tax professionals have been deputized by the IRS, which severely penalizes them for submitting returns with questionable or undocumented deductions. This forces them to play it safe, because most clients are unable to provide proper documentation for many types of deductions. Therefore, it is your responsibility to become familiar with the tax strategies that will save you thousands of dollars.

Did you know that you can charge your business to hold meetings in your home up to 14 times each year? This creates a deduction on the corporate or business side while creating income that you do not pay taxes on.

Did you know that you can save thousands of dollars and generate tax-free income by hiring your children? According to the law, you can pay them up to $6,300 each year for things like managing your social media or answering the phones.

Wondering why tax-free dollars are important? If you have a $50,000 expense and you’re in the top tax bracket, it actually costs you $83,000 to spend $50,000 with after-tax money. If you use before-tax money, the same $50,000 expense can be paid for with just $50,000. That’s a savings of $33,000!

At the 2015 PDS Conference, Ernest Nesmith of Tax Savings Professionals wowed the audience with winning tax strategies that could save pharmacy business owners anywhere from three to six figures in one year. Click here to watch his Tax Savings Webinar and learn more about how you can generate tax-free income, uncover hidden deductions and keep more of your hard-earned money.

What other game-changing strategies are you missing? Don’t miss the opportunity to hear from more experts like Ernest and pick up techniques for saving money, earning more cash and improving your business. Join us at the 2016 PDS Conference! This year’s lineup of speakers is exceptional.