April 10, 2025 • 20 mins
Questions? Thoughts? Send a Text to The Optometry Money Podcast!
Are you pulling the right levers in your tax planning?
In this episode, Evon walks through key strategic levers you can (and should) be using to improve your tax outcomes as an optometrist—especially if you're a private practice owner.
aWhile most conversations focus on deductions, this episode takes a step back to look at the full tax picture and the levers that truly move the needle in your personal and practice finances.
You'll learn:
- How the flow of a tax return works and why it matters for planning
- The types of income that trigger different tax treatment
- Why Adjusted Gross Income (AGI) is one of the most important numbers to watch
- What to know about the Qualified Business Income (QBI) deduction—and how to avoid phasing out
- A strategic case study showing how one planning move unlocked multiple tax benefits
- How to think about tax payments, safe harbor rules, and avoiding surprises at tax time
📄 Referenced in the Episode:
- Independent Strong article on Tax Planning Levers
- The Optometry Money Podcast Ep 51: An Optometrist’s Guide to the Qualified Business Income Deduction
- Blog: An Optometrist’s Guide to the Qualified Income Business (QBI) Deduction
- Schedule your Intro Call today!
📬 Subscribe to the Eyes On The Money Newsletter
Stay up to date on financial strategies just for optometrists, plus get your free 2025 financial planning guide: Click HERE to subscribe.
The Optometry Money Podcast is dedicated to helping optometrists make better decisions around their money, careers, and practices. The show is hosted by Evon Mendrin, CFP®, CSLP®, owner of Optometry Wealth Advisors, a financial planning firm just for optometrists nationwide.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Evon (00:04):
Hey everybody.
Welcome back to the OptometryMoney Podcast, where we're
helping ODs all over the countrymake better and better decisions
around their money, theircareers, and their practices.
I am your host, Evon Mendrin,Certified Financial Planner(TM)
practitioner, and owner ofOptometry Wealth Advisors and
independent financial planningfirm just for optometrists
nationwide.
(00:25):
And thank you so much forlistening.
Really appreciate you tuning inand listening this week.
And I've got a question for you.
Are you pulling the right leversin your tax planning?
This is a question I explored ina recent article I wrote for
Independent Strong, which I'mgonna link to on the show notes.
Because we, we often talk abouttactics, how do we get certain
(00:46):
deductions, how do we do fancythings like the Augusta Rule for
renting our home to ourpractice, or paying our kids in
our business, or acceleratingdepreciation and all this fancy
deduction stuff.
But what I wrote about in thearticle and what I'd like to
touch on today is that we shouldstart by taking a step back and
(01:07):
thinking a little bit morestrategically.
What are we actually trying toplan around for taxes?
What are we trying to influenceto get certain outcomes?
And what is the outcome we'reactually aiming for?
As we're right at the end of taxseason unless you filed an
extension you're very likelygetting your personal and
(01:28):
practice tax returns at alreadyat this point.
And when we step back and lookat how the tax return works, we
see that there's a flow to howyour taxes are calculated.
There's a formula to play aroundwith.
It's sort of like a funnel inthat all sources of income flows
(01:48):
into the top of the funnelunless it's specifically
excluded by law.
Then you subtract certaindeductions, then you're left
with a taxable income.
This is actually what flowsthrough the tax brackets to
calculate your total tax.
So you get your tax and then taxcredits offset the tax, and then
you compare that to the taxpayments you've made over the
(02:11):
year, and that tells you whetheryou have a tax due or whether
you have a refund.
And so there's this sort offunnel and flow to how the tax
return works in order to get tothe final result.
And.
There are key levers.
If you look at that tax return,there are key levers that you
can plan around, that you canpull, that you can play around
with.
(02:32):
And looking at this funnel, eachstage is sort of a chance to
evaluate and to optimize andimpacting one part of the tax
return.
One of these levers can havepositive or negative impacts on
all the rest.
And so what are some of thosekey tax planning levers that
optometrists should know about?
The first one is the differentsources of income you have.
(02:55):
What's actually what, what typesof income are actually flowing
to the top, and what does thistell us?
What it tells us, what taxrates, those different types of
income are going to be taxed at.
For example, your wages and yourpractice profit.
They're gonna see ordinary taxrates like 22 and 24 and 32%,
(03:16):
and so on.
Long-term capital gains, on theother hand, are gonna see
different tax brackets, 0%potentially, or 15% or 20%.
So the type of income matters.
It also tells us how losses arehandled, depending on the type
of losses they are, if they'rereal estate losses, and whether
they can be used to offset yourother income or not.
(03:38):
Or if there are capital losses,for example, what are our
restrictions there with how wecan use losses?
And importantly, if you havetaxable investment accounts,
it's a great way to see how muchincome the investments inside of
that particular account arekicking off.
And whether you need to makesome improvements, some very
(03:59):
common issues that I see lookingat new client accounts.
I see that there are oftentaxable bond fund in these, in
these accounts.
So some examples are everyaccount that you own is invested
the exact same way.
And so rather than put the bondsin the account that it's most
favorable for, you have bonds inthese taxable accounts and
(04:20):
they're kicking off a lot ofincome, and that income is taxed
at those ordinary higher incometax rates.
So that's one example.
You might have REIT fundskicking off income, or you might
have really actively managedfunds, mutual funds.
Kicking off a lot of incomebecause there's a lot of trading
happening in those funds.
And so that's an opportunity tosee, okay, how much income are
(04:42):
my accounts kicking off?
And are there opportunities forimprovements?
Are there areas forimprovements?
So that's sort of the first one,the type of income you're
actually working with.
The second one is adjusted grossincome or AGI.
This is probably one of the mostimportant levers, one of the
most important line items on thetax return to keep an eye on and
(05:02):
and to, to see if there'sopportunities for improvements.
Because your AGI or a modifiedversion of it determines whether
you're eligible for certaindeductions or credits.
Uh, deductions allow you tolower the amount of income
that's actually taxed.
Tax credits.
On the other hand, like thechild tax credit, which starts
(05:25):
phasing out at about$400,000 ofAGI tax credits are a dollar for
dollar offset of your tax due.
And so your AGI impacts youreligibility for certain credits
and deductions.
If you, if it's too high, youstart to phase outta them.
It impacts your eligibility forACA health insurance, premium
(05:46):
tax credits.
For those of you in the earlyyears of practice ownership.
It impacts your ability tocontribute directly to Roth
IRAs.
It also determines if you phaseinto certain extra taxes, like
the net investment income taxhigher Medicare premiums in
retirement.
(06:06):
So there's potentiallyadditional taxes you might face
if it's high enough.
For those of you with federalstudent loans, it's also the
default starting place.
I.
For calculating income-drivenrepayment plan monthly payments,
which is effectively if you, ifyou think about it, it's
effectively an additional tax onyour income.
So AGI is a hugely importantline item to watch and to plan
(06:28):
around and pulling this leverand decreasing AGI can sometimes
lead to phasing into back intothose certain deductions and
credits.
Or if it gets high enough, youstart to lose those, but also
face into those extra taxes.
Along with potentially higherstudent loan payments.
So all things equal, we'd liketo keep a close eye on this and
(06:49):
we'd like to see deductions showup above this line.
In other words, we'd like to seethose deductions lower your AGI.
And a lot of the ways we planfor deductions and tax
deferrals, they do end up aboveAGI: pre-tax retirement
contributions, for example.
HSA deposits, depreciation,business deductions, those are
(07:12):
all things that can help reduceAGI.
So adjusted gross income is animportant lever.
Itemized versus standarddeductions, that's an important
lever.
You either get to take astandard deduction amount.
Which is a set amount that alltaxpayers get to take and deduct
against their income.
That's$30,000 in 2025 if you aremarried, 15,000 if you're
(07:36):
single.
Or you can take itemizeddeductions, which is a list of
very specific personal expensesthat you can pile up like
donations to charity ornonprofits, state and local
taxes, up to$10,000, andmortgage interest.
And you can take the higher ofthe two.
(07:57):
So if your list, if your pile ofitemized deductions is more than
30,000, for example, if youmarried, then you can take that
list of deductions.
On the other hand, if it's, ifthat list, if that itemized list
is smaller.
You're taking that standarddeduction.
So a lot of times you hear sortof the, the points that, well,
(08:18):
your mortgage interest is taxdeductible or your donations to
charity are tax deductible.
Well, the reality is they'resometimes tax deductible.
I.
But for most taxpayers right nowanyways, it's actually not.
And so we can thinkstrategically around those
itemized deductions and, and wecan look for opportunities to
pull that lever.
For example, we may decide notto donate to charity or church
(08:42):
or a donor advised fund everyyear, and instead donate every
second or third year.
And so you bunch these donationsevery few years, which allows
you to increase your itemizeddeductions amounts so you can
actually benefit from thosedonations while you still get
(09:02):
the standard deduction amount inthe years in between.
And so looking at thatstrategically can help as well.
Next you have the qualifiedbusiness income deduction.
This is for those practiceowners out there that own pass
through business entities, so Scorporations, partnerships, sole
proprietorships for practiceowners that qualify this is
(09:24):
essentially a 20% deduction on amodified version of business
profit, basically operatingbusiness profit.
And I'll linked in the shownotes to an episode and a blog
post I did diving into this evenmore.
But optometrist practice ownerswill start to phase out of this
deduction once your taxableincome before the deduction
(09:47):
starts to hit a certain point,so for example, in 2025, if
you're married, filing taxesjointly.
Once your taxable income beforethat deduction hits$394,600, you
start to phase out of it.
You start to lose it at$494,600.
You lose it all together.
And so this is a lever, this isa really important lever for
(10:09):
business owners, even if you'reself-employed with a, uh, with
side income, side businessincome.
This is a really important leverto plan around.
As you start to see yourselfphase out of this timely
deductions can help bring youback into eligibility.
And for those practice ownersthat are taxed as an S
corporation.
You're also balancing your wagesversus your profit because wages
(10:33):
are not eligible for QBI onlyyour business profit and the
higher your wages, the loweryour profit.
So there's some balancingconsiderations with what you're
paying yourself as a wage versuswith a bunch of different
variables really, versus whatthe net profit's gonna be.
And it's really important.
I, I should note that at the endof this year, 2025.
(10:56):
The QBI deduction is set toexpire and quite a bit of
personal tax items, includingjust about everything I'm
touching on today are going torevert back to pre 2018 tax law,
and so it's expected by manythat Congress is going to act to
extend a lot of this, includingthe QBI deduction, but we really
(11:19):
just don't know.
Uh, until a law is actuallypassed.
We don't know what, what tax lawwe're gonna be working with in
2026 and beyond.
So something to keep an eye on.
We are expecting it to continue,but we cannot be certain until
the law is actually passed.
And then next we have taxableincome.
This is the next lever to thinkabout, and taxable income is the
income after all thesedeductions that actually runs
(11:43):
through the tax brackets.
To calculate your tax and theamount of taxable income you
have determines your marginaltax rate.
That these are the tax rates.
You tend to see like 12%, 22,24, 30 per 32%, and so on.
And remember that not all ofyour income is taxed at that tax
(12:04):
rate.
It's a progressive tax system,meaning that your income goes
through brackets and it'sfilling up these lowest tax rate
brackets first and only theincome within that specific
bracket of income is taxed atthat tax rate.
So 10%, 12%, 22%, 24%, andfinally 32% and so on.
(12:26):
And so your marginal tax ratethat everyone talks about is
really what the highest or lastbits of income are going to be
taxed at.
And same thing for capital gainstax rates as well.
Your taxable income determineshow much of those capital gains
are gonna be at zero, 15, or20%, or potentially 23.8% for
(12:47):
those extra taxes.
And for this lever, keeping onwhere you fall and what
opportunities come.
For example, if you're creepingfrom the 24 tax bracket into the
32% tax bracket.
We might favor pre-taxcontributions or other
deductions to keep income awayfrom that 8% jump in tax
bracket.
(13:07):
Other times we may actually wantto add income onto the tax
return or focus on Rothcontributions or sell
investments at a 0% capitalagainst tax rate, just depending
on what the situation lookslike.
So taxable income is a reallyimportant one.
And then finally, we can talkabout tax payments and
withholdings and nothing canstress you out quite like not
(13:28):
knowing how much you're going toowe at tax time, especially if
you are surprised by a big taxbill at tax time.
And a lot of that's really justa mismatch of the amount of tax
payments and withholdings thatyou make during the year versus
the tax that's calculated.
And so tracking yourwithholdings and quarterly tax
(13:49):
payments if you're makingquarterly tax payments.
To be on track each year is apretty big part of my
projections with clients as Italk about that, because we're
trying to avoid just thatuncertainty and avoid surprises.
And a goal that you might wannashoot for is to at least meet
the IRS Safe Harbor thresholds,which means that if you withhold
(14:09):
or pay into the system a certainamount of dollars.
Then you're not gonna owe a, anunder withholding penalty, an
extra amount there.
And so what that is, is that youcan withhold or pay at least 90%
of this year's tax, or 110% oflast year's total tax.
(14:30):
I.
If your AGI exceeds 150,000, soit's either or.
You can look at 110% of lastyear's total tax or try to get
within 90% of this year's totaltax.
Those are some basic thresholdsyou can try to aim for.
So putting it all together, wehave the flow of this tax return
and, and we have these differentpoints on a tax return to target
(14:52):
to look at and, and to tinkerwith.
When looking for opportunitiesand at times impacting some of
these points, can givedeductions an even bigger punch.
For example, in the case study,I included in the article, which
I, I recommend me reading so youcan see how the numbers are
working.
Imagine you're a couple, bothODs with two young kids, you're
(15:15):
married and you own a practicetogether.
At the amount of income in thepractice that I had talked
about.
You are getting into the 32% taxbracket, you're only partially
eligible for the QBI deductionbecause your taxable income's
too high and you're not eligibleat all for the child tax credit
for your two kids, that's a$2,000 credit for each kid under
(15:38):
17 because your AGI is too high.
And so that's sort of thesituation you're looking at and.
You can project out the tax yearand you can start to see how
pulling these different leveragepoints can impact your results.
What improvements can we make?
Some of our key levers here aregonna be taxable income because
we're starting to phase into anew tax bracket.
(15:58):
Adjusted gross income is a leverhere because that's what
determines the child tax crediteligibility, and then again,
taxable income because itdetermines the QBI eligibility.
So trying to impact those leversand helping us phase back into
these, uh, deductions, credits,and lower tax rates.
Are opportunities we mightproject and see what we can do.
(16:20):
So let's say for example, youdecide to make a a large profit
sharing contribution to your401k plan, and this is a tax
deferral.
So we'd also kind of evaluatethe likelihood of,of those
pre-tax dollars being withdrawnin retirement at a more
favorable tax rate.
But it could be anything.
It could be the new OCT thatyou're planning to buy and
(16:40):
accelerate that depreciation.
It could be an improvement orbuild out to the practice.
It could be a new exam lane.
Maybe you bought the commercialproperty of your practice and
we're, we're considering a costsegregation study.
This is where the tactics then.
All these specific deductionopportunities start to come into
play.
In order to to impact theseleverage points.
(17:00):
So you have this large taxdeferral.
What are the results?
Well, you brought your incomeback into the 24%, uh, percent
tax bracket.
So you avoided that 8% jump.
You were able to phase fullyback into eligibility for the
QBI deduction.
And you're eligible for most ofthe child tax credit.
(17:21):
And when you look at theeffective tax rate that your
deduction provided, meaning theamount of taxes saved, divided
by your deduction, by the amountof the deduction, the effective
tax rate, you got a deduction atended up, in this case even
higher then the 32% tax bracketyou started in.
(17:42):
And of course this is all asimplified case study example
with a hypothetical situation.
And I'm sort of obligated tosay, you know, check in with
your own Advisors and taxprofessionals to see what
actually makes sense for yourspecific situation.
But.
That's the power of looking atthese different leverage points
and seeing where the impact canhappen.
(18:02):
Why is that?
Well, again, we brought you outof a higher tax bracket for that
bit of income.
We phased you back into certaindeductions and we increased the
amount of credit you're getting.
So it had an even bigger punch.
And good tax planning isn't justabout stacking up as many deduct
deductions as possible.
It's about looking foropportunities to get the biggest
(18:24):
bank for your buck out of everydeduction and over your
lifetime.
And sometimes that meansaccelerating deductions into
current years.
Sometimes that meansaccelerating income or spreading
out deductions or over a set ofyears.
And as you map out the year nowthat we're, we can start to look
forward now to 2025.
(18:46):
I'm now looking at client taxreturns and reviewing those.
As you map out the year, taketime to review these key levers,
these, these key strategicplanning opportunities with your
own financial Planner and yourtax advisor.
And if you don't have anyoneprojecting these things out and
having these conversations withyou, let's schedule an intro
call.
Let's talk about.
(19:06):
How we can help you make bettertax planning decisions and work
together with your own taxprofessional.
And, and as you project the yearout, some questions to ask are,
what types of income are youworking with?
What tax brackets apply and howclose are we to lower or higher
tax brackets?
What deductions or credits areyou phasing out of?
(19:27):
And what extra taxes are beingtriggered and, and why.
And then finally, how wouldadditional income or additional
deductions or tax deferralaffect all of these different
factors?
So hopefully this was helpful toyou as you plan, as you look
ahead towards 2025 and beyondand far beyond.
Please let me know if you haveany questions you can reach me
(19:48):
at podcast@optometrywealth.Com.
Check out the article inIndependent Strong.
And then finally, if you'd liketo learn more about these things
on a regular basis, what you'dwant to do is subscribe to My
Weekly Eyes on the MoneyNewsletter.
I write all about this stuffeach week and other important
financial planning topicsspecific to Optometry and
Optometry practice ownership andif you do, you'll get a free
(20:09):
guide to all of the financialand tax planning numbers you
need to keep in mind for 2025.
With that, really appreciateyour time and your attention.
We will catch you on the nextepisode.
In the meantime, take care.
Hey everybody.
Welcome back to the OptometryMoney Podcast, where we're
helping ODs all over the countrymake better and better decisions
around their money, theircareers, and their practices.
I am your host, Evon Mendrin,Certified Financial Planner(TM)
practitioner, and owner ofOptometry Wealth Advisors and
independent financial planningfirm just for optometrists
nationwide.
(00:25):
And thank you so much forlistening.
Really appreciate you tuning inand listening this week.
And I've got a question for you.
Are you pulling the right leversin your tax planning?
This is a question I explored ina recent article I wrote for
Independent Strong, which I'mgonna link to on the show notes.
Because we, we often talk abouttactics, how do we get certain
(00:46):
deductions, how do we do fancythings like the Augusta Rule for
renting our home to ourpractice, or paying our kids in
our business, or acceleratingdepreciation and all this fancy
deduction stuff.
But what I wrote about in thearticle and what I'd like to
touch on today is that we shouldstart by taking a step back and
(01:07):
thinking a little bit morestrategically.
What are we actually trying toplan around for taxes?
What are we trying to influenceto get certain outcomes?
And what is the outcome we'reactually aiming for?
As we're right at the end of taxseason unless you filed an
extension you're very likelygetting your personal and
(01:28):
practice tax returns at alreadyat this point.
And when we step back and lookat how the tax return works, we
see that there's a flow to howyour taxes are calculated.
There's a formula to play aroundwith.
It's sort of like a funnel inthat all sources of income flows
(01:48):
into the top of the funnelunless it's specifically
excluded by law.
Then you subtract certaindeductions, then you're left
with a taxable income.
This is actually what flowsthrough the tax brackets to
calculate your total tax.
So you get your tax and then taxcredits offset the tax, and then
you compare that to the taxpayments you've made over the
(02:11):
year, and that tells you whetheryou have a tax due or whether
you have a refund.
And so there's this sort offunnel and flow to how the tax
return works in order to get tothe final result.
And.
There are key levers.
If you look at that tax return,there are key levers that you
can plan around, that you canpull, that you can play around
with.
(02:32):
And looking at this funnel, eachstage is sort of a chance to
evaluate and to optimize andimpacting one part of the tax
return.
One of these levers can havepositive or negative impacts on
all the rest.
And so what are some of thosekey tax planning levers that
optometrists should know about?
The first one is the differentsources of income you have.
(02:55):
What's actually what, what typesof income are actually flowing
to the top, and what does thistell us?
What it tells us, what taxrates, those different types of
income are going to be taxed at.
For example, your wages and yourpractice profit.
They're gonna see ordinary taxrates like 22 and 24 and 32%,
(03:16):
and so on.
Long-term capital gains, on theother hand, are gonna see
different tax brackets, 0%potentially, or 15% or 20%.
So the type of income matters.
It also tells us how losses arehandled, depending on the type
of losses they are, if they'rereal estate losses, and whether
they can be used to offset yourother income or not.
(03:38):
Or if there are capital losses,for example, what are our
restrictions there with how wecan use losses?
And importantly, if you havetaxable investment accounts,
it's a great way to see how muchincome the investments inside of
that particular account arekicking off.
And whether you need to makesome improvements, some very
(03:59):
common issues that I see lookingat new client accounts.
I see that there are oftentaxable bond fund in these, in
these accounts.
So some examples are everyaccount that you own is invested
the exact same way.
And so rather than put the bondsin the account that it's most
favorable for, you have bonds inthese taxable accounts and
(04:20):
they're kicking off a lot ofincome, and that income is taxed
at those ordinary higher incometax rates.
So that's one example.
You might have REIT fundskicking off income, or you might
have really actively managedfunds, mutual funds.
Kicking off a lot of incomebecause there's a lot of trading
happening in those funds.
And so that's an opportunity tosee, okay, how much income are
(04:42):
my accounts kicking off?
And are there opportunities forimprovements?
Are there areas forimprovements?
So that's sort of the first one,the type of income you're
actually working with.
The second one is adjusted grossincome or AGI.
This is probably one of the mostimportant levers, one of the
most important line items on thetax return to keep an eye on and
(05:02):
and to, to see if there'sopportunities for improvements.
Because your AGI or a modifiedversion of it determines whether
you're eligible for certaindeductions or credits.
Uh, deductions allow you tolower the amount of income
that's actually taxed.
Tax credits.
On the other hand, like thechild tax credit, which starts
(05:25):
phasing out at about$400,000 ofAGI tax credits are a dollar for
dollar offset of your tax due.
And so your AGI impacts youreligibility for certain credits
and deductions.
If you, if it's too high, youstart to phase outta them.
It impacts your eligibility forACA health insurance, premium
(05:46):
tax credits.
For those of you in the earlyyears of practice ownership.
It impacts your ability tocontribute directly to Roth
IRAs.
It also determines if you phaseinto certain extra taxes, like
the net investment income taxhigher Medicare premiums in
retirement.
(06:06):
So there's potentiallyadditional taxes you might face
if it's high enough.
For those of you with federalstudent loans, it's also the
default starting place.
I.
For calculating income-drivenrepayment plan monthly payments,
which is effectively if you, ifyou think about it, it's
effectively an additional tax onyour income.
So AGI is a hugely importantline item to watch and to plan
(06:28):
around and pulling this leverand decreasing AGI can sometimes
lead to phasing into back intothose certain deductions and
credits.
Or if it gets high enough, youstart to lose those, but also
face into those extra taxes.
Along with potentially higherstudent loan payments.
So all things equal, we'd liketo keep a close eye on this and
(06:49):
we'd like to see deductions showup above this line.
In other words, we'd like to seethose deductions lower your AGI.
And a lot of the ways we planfor deductions and tax
deferrals, they do end up aboveAGI: pre-tax retirement
contributions, for example.
HSA deposits, depreciation,business deductions, those are
(07:12):
all things that can help reduceAGI.
So adjusted gross income is animportant lever.
Itemized versus standarddeductions, that's an important
lever.
You either get to take astandard deduction amount.
Which is a set amount that alltaxpayers get to take and deduct
against their income.
That's$30,000 in 2025 if you aremarried, 15,000 if you're
(07:36):
single.
Or you can take itemizeddeductions, which is a list of
very specific personal expensesthat you can pile up like
donations to charity ornonprofits, state and local
taxes, up to$10,000, andmortgage interest.
And you can take the higher ofthe two.
(07:57):
So if your list, if your pile ofitemized deductions is more than
30,000, for example, if youmarried, then you can take that
list of deductions.
On the other hand, if it's, ifthat list, if that itemized list
is smaller.
You're taking that standarddeduction.
So a lot of times you hear sortof the, the points that, well,
(08:18):
your mortgage interest is taxdeductible or your donations to
charity are tax deductible.
Well, the reality is they'resometimes tax deductible.
I.
But for most taxpayers right nowanyways, it's actually not.
And so we can thinkstrategically around those
itemized deductions and, and wecan look for opportunities to
pull that lever.
For example, we may decide notto donate to charity or church
(08:42):
or a donor advised fund everyyear, and instead donate every
second or third year.
And so you bunch these donationsevery few years, which allows
you to increase your itemizeddeductions amounts so you can
actually benefit from thosedonations while you still get
(09:02):
the standard deduction amount inthe years in between.
And so looking at thatstrategically can help as well.
Next you have the qualifiedbusiness income deduction.
This is for those practiceowners out there that own pass
through business entities, so Scorporations, partnerships, sole
proprietorships for practiceowners that qualify this is
(09:24):
essentially a 20% deduction on amodified version of business
profit, basically operatingbusiness profit.
And I'll linked in the shownotes to an episode and a blog
post I did diving into this evenmore.
But optometrist practice ownerswill start to phase out of this
deduction once your taxableincome before the deduction
(09:47):
starts to hit a certain point,so for example, in 2025, if
you're married, filing taxesjointly.
Once your taxable income beforethat deduction hits$394,600, you
start to phase out of it.
You start to lose it at$494,600.
You lose it all together.
And so this is a lever, this isa really important lever for
(10:09):
business owners, even if you'reself-employed with a, uh, with
side income, side businessincome.
This is a really important leverto plan around.
As you start to see yourselfphase out of this timely
deductions can help bring youback into eligibility.
And for those practice ownersthat are taxed as an S
corporation.
You're also balancing your wagesversus your profit because wages
(10:33):
are not eligible for QBI onlyyour business profit and the
higher your wages, the loweryour profit.
So there's some balancingconsiderations with what you're
paying yourself as a wage versuswith a bunch of different
variables really, versus whatthe net profit's gonna be.
And it's really important.
I, I should note that at the endof this year, 2025.
(10:56):
The QBI deduction is set toexpire and quite a bit of
personal tax items, includingjust about everything I'm
touching on today are going torevert back to pre 2018 tax law,
and so it's expected by manythat Congress is going to act to
extend a lot of this, includingthe QBI deduction, but we really
(11:19):
just don't know.
Uh, until a law is actuallypassed.
We don't know what, what tax lawwe're gonna be working with in
2026 and beyond.
So something to keep an eye on.
We are expecting it to continue,but we cannot be certain until
the law is actually passed.
And then next we have taxableincome.
This is the next lever to thinkabout, and taxable income is the
income after all thesedeductions that actually runs
(11:43):
through the tax brackets.
To calculate your tax and theamount of taxable income you
have determines your marginaltax rate.
That these are the tax rates.
You tend to see like 12%, 22,24, 30 per 32%, and so on.
And remember that not all ofyour income is taxed at that tax
(12:04):
rate.
It's a progressive tax system,meaning that your income goes
through brackets and it'sfilling up these lowest tax rate
brackets first and only theincome within that specific
bracket of income is taxed atthat tax rate.
So 10%, 12%, 22%, 24%, andfinally 32% and so on.
(12:26):
And so your marginal tax ratethat everyone talks about is
really what the highest or lastbits of income are going to be
taxed at.
And same thing for capital gainstax rates as well.
Your taxable income determineshow much of those capital gains
are gonna be at zero, 15, or20%, or potentially 23.8% for
(12:47):
those extra taxes.
And for this lever, keeping onwhere you fall and what
opportunities come.
For example, if you're creepingfrom the 24 tax bracket into the
32% tax bracket.
We might favor pre-taxcontributions or other
deductions to keep income awayfrom that 8% jump in tax
bracket.
(13:07):
Other times we may actually wantto add income onto the tax
return or focus on Rothcontributions or sell
investments at a 0% capitalagainst tax rate, just depending
on what the situation lookslike.
So taxable income is a reallyimportant one.
And then finally, we can talkabout tax payments and
withholdings and nothing canstress you out quite like not
(13:28):
knowing how much you're going toowe at tax time, especially if
you are surprised by a big taxbill at tax time.
And a lot of that's really justa mismatch of the amount of tax
payments and withholdings thatyou make during the year versus
the tax that's calculated.
And so tracking yourwithholdings and quarterly tax
(13:49):
payments if you're makingquarterly tax payments.
To be on track each year is apretty big part of my
projections with clients as Italk about that, because we're
trying to avoid just thatuncertainty and avoid surprises.
And a goal that you might wannashoot for is to at least meet
the IRS Safe Harbor thresholds,which means that if you withhold
(14:09):
or pay into the system a certainamount of dollars.
Then you're not gonna owe a, anunder withholding penalty, an
extra amount there.
And so what that is, is that youcan withhold or pay at least 90%
of this year's tax, or 110% oflast year's total tax.
(14:30):
I.
If your AGI exceeds 150,000, soit's either or.
You can look at 110% of lastyear's total tax or try to get
within 90% of this year's totaltax.
Those are some basic thresholdsyou can try to aim for.
So putting it all together, wehave the flow of this tax return
and, and we have these differentpoints on a tax return to target
(14:52):
to look at and, and to tinkerwith.
When looking for opportunitiesand at times impacting some of
these points, can givedeductions an even bigger punch.
For example, in the case study,I included in the article, which
I, I recommend me reading so youcan see how the numbers are
working.
Imagine you're a couple, bothODs with two young kids, you're
(15:15):
married and you own a practicetogether.
At the amount of income in thepractice that I had talked
about.
You are getting into the 32% taxbracket, you're only partially
eligible for the QBI deductionbecause your taxable income's
too high and you're not eligibleat all for the child tax credit
for your two kids, that's a$2,000 credit for each kid under
(15:38):
17 because your AGI is too high.
And so that's sort of thesituation you're looking at and.
You can project out the tax yearand you can start to see how
pulling these different leveragepoints can impact your results.
What improvements can we make?
Some of our key levers here aregonna be taxable income because
we're starting to phase into anew tax bracket.
(15:58):
Adjusted gross income is a leverhere because that's what
determines the child tax crediteligibility, and then again,
taxable income because itdetermines the QBI eligibility.
So trying to impact those leversand helping us phase back into
these, uh, deductions, credits,and lower tax rates.
Are opportunities we mightproject and see what we can do.
(16:20):
So let's say for example, youdecide to make a a large profit
sharing contribution to your401k plan, and this is a tax
deferral.
So we'd also kind of evaluatethe likelihood of,of those
pre-tax dollars being withdrawnin retirement at a more
favorable tax rate.
But it could be anything.
It could be the new OCT thatyou're planning to buy and
(16:40):
accelerate that depreciation.
It could be an improvement orbuild out to the practice.
It could be a new exam lane.
Maybe you bought the commercialproperty of your practice and
we're, we're considering a costsegregation study.
This is where the tactics then.
All these specific deductionopportunities start to come into
play.
In order to to impact theseleverage points.
(17:00):
So you have this large taxdeferral.
What are the results?
Well, you brought your incomeback into the 24%, uh, percent
tax bracket.
So you avoided that 8% jump.
You were able to phase fullyback into eligibility for the
QBI deduction.
And you're eligible for most ofthe child tax credit.
(17:21):
And when you look at theeffective tax rate that your
deduction provided, meaning theamount of taxes saved, divided
by your deduction, by the amountof the deduction, the effective
tax rate, you got a deduction atended up, in this case even
higher then the 32% tax bracketyou started in.
(17:42):
And of course this is all asimplified case study example
with a hypothetical situation.
And I'm sort of obligated tosay, you know, check in with
your own Advisors and taxprofessionals to see what
actually makes sense for yourspecific situation.
But.
That's the power of looking atthese different leverage points
and seeing where the impact canhappen.
(18:02):
Why is that?
Well, again, we brought you outof a higher tax bracket for that
bit of income.
We phased you back into certaindeductions and we increased the
amount of credit you're getting.
So it had an even bigger punch.
And good tax planning isn't justabout stacking up as many deduct
deductions as possible.
It's about looking foropportunities to get the biggest
(18:24):
bank for your buck out of everydeduction and over your
lifetime.
And sometimes that meansaccelerating deductions into
current years.
Sometimes that meansaccelerating income or spreading
out deductions or over a set ofyears.
And as you map out the year nowthat we're, we can start to look
forward now to 2025.
(18:46):
I'm now looking at client taxreturns and reviewing those.
As you map out the year, taketime to review these key levers,
these, these key strategicplanning opportunities with your
own financial Planner and yourtax advisor.
And if you don't have anyoneprojecting these things out and
having these conversations withyou, let's schedule an intro
call.
Let's talk about.
(19:06):
How we can help you make bettertax planning decisions and work
together with your own taxprofessional.
And, and as you project the yearout, some questions to ask are,
what types of income are youworking with?
What tax brackets apply and howclose are we to lower or higher
tax brackets?
What deductions or credits areyou phasing out of?
(19:27):
And what extra taxes are beingtriggered and, and why.
And then finally, how wouldadditional income or additional
deductions or tax deferralaffect all of these different
factors?
So hopefully this was helpful toyou as you plan, as you look
ahead towards 2025 and beyondand far beyond.
Please let me know if you haveany questions you can reach me
(19:48):
at podcast@optometrywealth.Com.
Check out the article inIndependent Strong.
And then finally, if you'd liketo learn more about these things
on a regular basis, what you'dwant to do is subscribe to My
Weekly Eyes on the MoneyNewsletter.
I write all about this stuffeach week and other important
financial planning topicsspecific to Optometry and
Optometry practice ownership andif you do, you'll get a free
(20:09):
guide to all of the financialand tax planning numbers you
need to keep in mind for 2025.
With that, really appreciateyour time and your attention.
We will catch you on the nextepisode.
In the meantime, take care.
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