Pharmacy Tax Planning: 3 Tips to Avoid Surprise Tax Bills
In this video, Bonnie Bond, CPA and Kendell Harris, CPA at Sykes & Company, P.A. discuss surprise tax bills — money you owe that you did not expect. They offer three tips for pharmacy tax planning that help you avoid these surprise tax bills. You can’t always avoid owing money to the IRS or state, but it doesn’t have to be a surprise. You can plan ahead by working with a pharmacy specific CPA here at Sykes & Company, P.A.
- Keep your financial statements up to date monthly to anticipate business income
- Mitigate future taxes owed through pharmacy tax planning each fall
- Apply tax deductions and credits specific to pharmacies
If you have ever dealt with a surprise tax bill, ask our pharmacy CPAs and advisors to look at your pharmacy’s financials. You probably have more pharmacy tax planning options than you think.
If you prefer to read this content, the video transcript is below.
Bonnie Bond: So Kendell, one of the things that I hear a lot in the late March, early April timeframe regarding taxes from friends and acquaintances, and you know, that I’m around, is a surprise tax bill. So I’m sure you hear this, too. Obviously, not clients of ours, but friends that own businesses and are in similar situations where they get a call from their CPA, you know, early April, April 15th, and say you owe $15,000. We need you to write a check to the IRS and to the state. So there’s got to be ways to alleviate that, to make that so it’s not a surprise. There’s nothing wrong with owing the IRS but you know, there are ways to mitigate that tax and to save yourself money. And the main thing is just to not be surprised.
Kendell Harris: One of the big things that we try to do with our clients, and I think we’ve encouraged for all pharmacists, is to have monthly accounting done. That’s one way to mitigate the surprise tax bill, is if throughout the year you have an idea of your performance, but what we say “monthly accounting” might be completely different than some others in the industry when they talk about monthly accounting. Bonnie you can kind of give an example of the type of things that needs to be done on a monthly basis to avoid the surprise tax bill.
Bonnie Bond: Right. So it’s really the foundation of what you’re gonna use that we’ll talk about later in the video, is your numbers, whether you have income or you have a loss, and you can’t just reconcile your bank account and maybe you do that in QuickBooks. And you’re like, oh my books are up to date just because you’ve reconciled. We’re talking about adjusted financial statements. So you’ve already made the adjustments for maybe accrual based accounting or cash basis, you know exactly where your receivables and payables are. Kind of like your CPA would maybe do at the end of the year. You know concrete, even in June, July, exactly kind of where you stand as far as your net income, and with that information then you’re able to move on to the next steps.
Kendell Harris: Yeah. So basically if you’re getting an idea of your financials after the year, that’s the first thing that’s gonna cause a surprise tax bill because you don’t even know how you’ve done. You should be getting monthly financial statements that outlines your performance and not just your bank balance throughout the year.
Bonnie Bond: And I think that takes us to the next part. So once you have up-to-date information real time, you know where you stand, then you can start looking at some tax planning options. That’s something that we do really big here at Sykes & Company obviously in the October-November timeframe. It’s because we have real-time information. We can take that information and say, okay, you know, we’ve got $200,000 of net income. What can we do before the end of the year to mitigate the tax as much as we can for this client?
Kendell Harris: We can look at different things such as, are there any equipment that you’ve been looking to purchase that this would be a good year to mitigate that income? Or maybe you’re working, everyone in the pharmacy has been working really hard and you want to reward them with a bonus, or you could compare different examples. We have some videos on what exactly tax planning is. So if you want to get a detailed dive of what tax planning is, you can check out some of our other videos but that’s something that’s done around October. And you’re planning for what your bill, and actually you have some control over, what your bill will be come April. So that it’s not a surprise.
So the tax planning around October, November is another big thing that you can do to help control your taxes and avoid that big tax surprise bill that April 15th.
Bonnie Bond: And the tax planning isn’t necessarily getting rid of all of the tax. It’s just giving you, there is some mitigation there because there are some things like you mentioned that we could do. We could do maybe some retirement plan options once you see kind of how the business is operating. But it’s again, taking away that element of surprise, we can at least tell you right now that you’re gonna owe $15,000 on April 15th. You know that in November. So you can choose to maybe go ahead and bonus yourself through the business to have that money paid in. You can pay some estimated tax payments, whatever, but there’s no surprise about that in April.
Kendell Harris: Yeah. That’s a big thing. And then that moves us to the third item that you can do to kind of avoid any surprise tax bill. And that’s just to work with an accountant that understands the pharmacy industry. So a pharmacy specific accountant. The reason why is there’s a lot of adjustments that are specific to accounting. And if you have somebody month in and month out that’s working with you that understands that, you’ll have an idea of what your income will be. And there’s also a lot of different opportunities that are out there that are specific to pharmacies, tax laws that maybe impact a pharmacist more than other business owners. And once you have someone that does pharmacy day in and day out, they can help you take advantage of some of those opportunities that’s there. Bonnie, you got any examples of things that we can, a pharmacy specific accountant can look into?
Bonnie Bond: Sure. So like for this year, just one that pops into mind is the R&D tax credit. Again, I don’t know that if we worked with various industries, if we worked with contractors, if we worked with plumbers, if we did some independent pharmacies and all these different things, I’m not sure we would understand the ins and outs of, just for a small example, the R&D tax credit that can be available to some of our independent pharmacies, because it’s very extensive. It takes a lot of work to understand that and how that operates and how it works and with your tax return to save you money. But that’s why it’s important, you know. And that’s a benefit that you get from working with someone who understands that specific independent pharmacy industry.
Kendell Harris: I feel like, so the big takeaway from this video is you might not completely eliminate your tax, but as Bonnie brought out, you can do things in advance to either pay in or you’ll just have the satisfaction in knowing what your tax is. So those are three key things just to kind of reiterate that you can do to avoid the surprise tax bill. That’s one, accurate monthly accounting every month, around October-November start to do tax planning and then third, work with a pharmacy specific CPA who can take advantage of different areas of the tax law that specifically applies to pharmacists.