Becoming a veterinarian requires years of hard work, training, and dedication to constantly improve one’s practice of veterinary medicine. Whether the patients you see at your practice are house pets, like dogs or cats, or farm animals, such as horses, you know that your patients and their owners depend on you to provide reliable medical services. Therefore, the last thing a vet needs on his or her mind are tax or financial concerns.
Unfortunately, part of becoming a veterinarian often includes managing one’s practice and its finances. Making matters even more complex the IRS, California Franchise Tax Board, California Employment Development Department, and the California Board of Equalization all oversee different parts of a practice’s tax obligations. A comprehensive handling of all medical practice tax and financial obligations will require engaging with all of these agencies. The accountants of the Cook CPA Group can work with veterinarians and other medical professionals so that they can spend more time practicing medicine and less time worrying about tax and financial concerns.
The Basics of Taxation of Veterinary Practices in California
To start, one must first consider the form of organization of the practice entity. The entity may be organized in a corporate form or may take the form of limited liability company (LLC), a partnership, or a sole proprietorship. While all of these are valid forms of organization, most practices will not be well-served as a sole proprietorship. This is because a sole proprietorship commingles personal and business assets. This fact means that certain money-saving tax strategies are not available. But more concerning, it means that if your business fails or is sued, creditors can seek to obtain your person assets.
As such, many veterinarians elect to form a California veterinary personal service corporation (PSC). Under this form of organization, a 35-percent flat tax applies. Depending on the form your veterinarian practice takes, different rules regarding tax treatment and accounting methods will apply.
What Tax Obligations Impact a Vet’s Office?
Most doctors are well aware of their duty to file and pay income taxes. The income tax obligation is handled by the IRS at the federal level and by the California Franchise Tax Board (FTB) at the state level. Businesses are typically required to file income tax returns annually, however, the exact due date will vary on the form of the business entity. For instance, partnerships will typically file by the regular April 15 tax deadline (April 18th for 2017). However, a corporation is typically obligated to file on the 15th day of the third month following the close of the corporate fiscal year. Businesses often have additional periodic or supplemental reporting requirements.
In additional income tax concerns, a vet’s office also has to contend with sales tax and use tax issues. Sales and use tax is a state-based obligation administered by the California Board of Equalization. Generally, the office must determine whether the sales of certain goods are “retail sales” under state law. Furthermore, the office must also consider whether productions are being sold for resale as part of its use tax determination. The failure to satisfy either sales tax or use tax obligations often leads to an audit by the BOE.
The office must also ensure that all payroll tax obligations are fully accounted for. State Payroll tax obligations are enforced by the state Employment Development Division. Federal payroll tax obligations are handled by the IRS. The failure to satisfy employment tax obligations frequently results in extremely aggressive audits and prosecution. Failure to account for, hold, and pay over trust fund taxes like payroll taxes can mean that “responsible parties” are held personally liable for the unpaid taxes.
Protect Against an Audit of Your Veterinary Practice
Audits of a business can occur for many reasons. Veterinarian practices are no exception to this rule. In fact, due to the high relative income levels of vets and their practices, the IRS and other tax organizations may be more likely to audit a medical practice. The accountants of the Cook CPA group can guide your practice with a day-to-day accounting of tax and financial obligations. To discuss whether our accounting firm’s services are appropriate for your practice, please call 916-432-2218.