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Federal Income Tax for 1964: A Checklist for Dentists
Federal Income T a x for 1 9 6 4 : a checklist for dentists
A dentist in private practice reports his professional income and expenses on a separate Schedule C “Schedule of Profit (and Loss) From Business or Profession.” The net profit shown on Schedule G is then carried over to Form 1040 where the dentist may then take his personal deductions or elect to take the standard deduction. All business deductions are set forth on Schedule G, and all personal deductions on Form 1040 unless the dentist takes the standard deduction in lieu of his actual personal deductions. Dividend Exclusions • Prior to the 1964 amendments individuals could exclude from gross income the first $50 of divi dend income. For 1964 returns, the divi dend exclusions have been increased to $ 100.
1964 Individual Income Tax Rates • We all know the Revenue Act of 1964 resulted in a decrease in individual tax rates and that the law provides for an additional decrease during 1965. However, there were other changes in the tax law which apply to tax returns filed for 1964 which may or may not be considered favorable to the taxpayer. CHANGES IN TAX LAW —
Some State and Local Taxes No Longer Deductible • The following state and local taxes were deductible on 1963 returns but are not deductible on 1964 returns: —Taxes on cigarettes, tobacco and alcoholic beverages. —Driver’s license fees. —Registration fees for motor vehicles. —Poll taxes. Personal Casualty and Theft Losses • Commencing with the 1964 return, the deductibility of personal casualty and
148 •J . AMER. DENT. ASSN.: Vol. 70, Jan. 1965
theft losses is limited to the amount of —Honorariums for speeches and writ each loss in excess of $100. This does not ings. apply to losses incurred in a taxpayer’s —Referral fees. trade or business. —Other. Depending on whether they arise from Charitable Contributions • An addi the dentist’s profession, the following are tional 10 per cent charitable contribution reported on either Schedule C or Form deduction is allowed for contributions to 1040. any organization to which the basic 20% —Contest prizes. limitation applies, if the organization is —Rents and royalties. publicly or governmentally supported. —Interest and dividends. Medical Expenses for Medicines and B U SIN E SS E X PE N SES Drugs • Commencing with the 1964 return, the 1 per cent limitation with Business expenses are shown on Sched regard to medicine and drugs is repealed ule C. for taxpayers age 65 and over. A dentist, like anyone engaged in a business, is entitled to deduct all ordinary and necessary expenses incurred in the practice of his profession such as: —Accountant’s fees. —Auto expenses to extent used for professional purposes; not included is commuting to office. —Books if useful life is short; long-life requires depreciation. —Collection fees. Travel Expenses • The 1964 amend —Fees to professional societies; does ments reinstate the pre-1963 policy for not include contributions to political ac travel within the United States, which tion committees. policy permits deduction of the full —Dental meeting costs ; includes regis amount of traveling expenses incurred tration fees, room, meals, transportation, on trips which are primarily for business tips. purposes. The rule for foreign travel —Costs of defending a professional lia remains the same as in 1963 ; for example, bility lawsuit. the traveling expenses (including meals —Dues in dental societies and other and lodging) of a combined business- organizations for a business purpose. personal trip, have to be allocated be —Educational costs (see Educational tween the expenses for business and Expense). expenses for personal reasons, and only —Entertainment ( see Entertainment the business portion is deductible. Expense). —Fire, casualty and theft losses to ex tent not compensated by insurance. TAXABLE INCOM E —Gifts to employees and others for Income from the following sources is tax business reasons. able as income from the practice of a —Instruments with life of less than profession, and as such, must be reported one year. on Schedule C. —Premiums for such policies as pro —Professional fees. fessional liability, premises liability, and —Profits from a professional partner fire and theft insurance on professional ship. property.
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—Interest on indebtedness arising out of professional practice. (Interest on per sonal indebtedness is deductible on Form 1040.) —Laundry costs of linens, uniforms, and so on, connected with practice. —Legal fees in connection with profes sional practice. —License and reregistration fees neces sary to maintain practice. —Magazines and newspapers for wait ing room. —Maintenance of office, including util ities. —Office supplies, bookkeeping sup plies. —Professional journals and periodicals. —Rental space for office. —Repairs to equipment. —Utilities and other expenses of up keep of dental office. —Salaries to assistants, hygienists, and so on, including contributions to em ployee pension plans. —Taxes on personal and real property used in professional practice. —Telephone and telephone answering service. —Traveling expenses; for example, vis its to patients, attending dental meetings, trips to hospitals. —Surgical gowns or other “uniforms.” —Depreciation on long-life equipment, furniture, books, etc. Wife’s Travel Expenses • A husband may deduct his wife’s travel expenses if he can prove that his wife performed services on the trip which were directly attribut able to, and necessary to, the conduct of his business on the trip. The Internal Revenue Service applies a “necessity of presence test” and it can be expected that deductions for a wife’s attendance at a dental meeting will be denied. The tax courts have indicated that the per formance of some incidental services on the trip does not establish that the wife’s presence served a bona fide business purpose.
Contributions to Pension and Profit Sharing Plans • Contributions to an em ployees pension or retirement plan con stitute an expense of doing business and are deductible. Tax returns for 1964 may include deductions for the dentist’s con tributions to his own retirement plan if the retirement plan has been priorapproved and the deductions conform to the Self-Employed Individuals Tax Retirement Act of 1962, sometimes known as the “Keogh Law.” Educational Expense • Educational ex penses are deductible as ordinary and necessary business expenses of a dentist when the education is undertaken pri marily to maintain or improve existing skills. Allowable deduction is for tuition, fees and travel expenses. Entertainment Expense • A dentist may deduct the costs of entertainment, pro vided that he can establish that the expense was “directly related” to, and “associated” with, his practice and that the entertainment occurred directly be fore or after a substantial and bona fide business discussion. The dentist must show something more than that he ex pected to get referrals or patients as a result of the entertainment. Professional Office and Residence in One Building • All expenses which can be allocated to the business use can be de ducted as business expenses. The alloca tion must “clearly reflect income,” and if it does, the method of allocation is acceptable.
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Depreciation • The dentist can use any of several methods of computing depreci ation and elect the one most beneficial to him. Regardless of the method used, the dentist may deduct in the year of acqui sition 20 per cent of the cost of the prop erty which has a life of six years or more.
DECLARATION OF ESTIM ATED TAX
In general, an individual is required to file a declaration of estimated tax, Form 1040ES, and to make quarterly payments in advance of filing the annual income tax return if his total expected tax ex ceeds his withholding by $40 or more. Dentists who are self-employed must file a declaration if their expected income, not subject to withholding, is more than $200 for the forthcoming year.
Rental Costs • Equipment rental costs are deductible business expenses. If the equipment is subsequently purchased from the lessor and rentals applied as part of the sales prices, the rental costs are not deductible. In such instances the total PERSONAL DEDUCTIONS cost of the equipment is either depreci ated or deducted as an expense, depend These are deductions personal to the ing on the expected life of the equipment. dentist as an individual as opposed to deductions in the course of his Dues to Social, Athletic and Sporting professionalincurred practice. The following check Clubs • It is necessary that the club be is applicable to all taxpayers who used primarily for business purposes be list elect their deductions rather fore any dues or fees will be deductible. than totakeitemize the standard deduction. A And then, only that portion allotted to dentist is entitled to take the standard business use will be allowed. deduction even after he has deducted on Schedule C the ordinary and necessary Lobbying Expenses • Contributions to business expenses. candidates, political parties and political —Charitable contributions. action committes are nondeductible. —Interest expense. Dentists may take deductions for certain —State and local taxes, including real types of legislative activities: for exam and personal property taxes, sales tax and ple, costs of appearances before or com state income tax. munications with legislative bodies, and —Medical and dental expenses, in communication of information to a dental cluding medicines and drugs and costs of society. All expenses must be in connec travel to a doctor or hospital. tion with existing or proposed legislation •—Medical appliances, including hear which is of direct interest to the dentist. ing aids, prosthetic appliances, orthopedic shoes, and so on. —Hospitalization and insurance pre Reimbursed Expenses • A dentist serving as a committee member or in some other miums for medical insurance. —Casualties and theft losses. official capacity wherein he is reimbursed —Costs of preparing income tax re by the dental society while away from his practice must report this sum as in turn. come in certain cases. If the reimburse ment is equivalent to actual expenses, then it need not be included in the tax return. If reimbursement is in excess of, or less than actual expenses the total amount of the reimbursement must be added to gross income and then all actual expenses may be deducted.
A dentist in private practice reports his professional income and expenses on a separate Schedule C “Schedule of Profit (and Loss) From Business or Profession.” The net profit shown on Schedule G is then carried over to Form 1040 where the dentist may then take his personal deductions or elect to take the standard deduction. All business deductions are set forth on Schedule G, and all personal deductions on Form 1040 unless the dentist takes the standard deduction in lieu of his actual personal deductions. Dividend Exclusions • Prior to the 1964 amendments individuals could exclude from gross income the first $50 of divi dend income. For 1964 returns, the divi dend exclusions have been increased to $ 100.
1964 Individual Income Tax Rates • We all know the Revenue Act of 1964 resulted in a decrease in individual tax rates and that the law provides for an additional decrease during 1965. However, there were other changes in the tax law which apply to tax returns filed for 1964 which may or may not be considered favorable to the taxpayer. CHANGES IN TAX LAW —
Some State and Local Taxes No Longer Deductible • The following state and local taxes were deductible on 1963 returns but are not deductible on 1964 returns: —Taxes on cigarettes, tobacco and alcoholic beverages. —Driver’s license fees. —Registration fees for motor vehicles. —Poll taxes. Personal Casualty and Theft Losses • Commencing with the 1964 return, the deductibility of personal casualty and
148 •J . AMER. DENT. ASSN.: Vol. 70, Jan. 1965
theft losses is limited to the amount of —Honorariums for speeches and writ each loss in excess of $100. This does not ings. apply to losses incurred in a taxpayer’s —Referral fees. trade or business. —Other. Depending on whether they arise from Charitable Contributions • An addi the dentist’s profession, the following are tional 10 per cent charitable contribution reported on either Schedule C or Form deduction is allowed for contributions to 1040. any organization to which the basic 20% —Contest prizes. limitation applies, if the organization is —Rents and royalties. publicly or governmentally supported. —Interest and dividends. Medical Expenses for Medicines and B U SIN E SS E X PE N SES Drugs • Commencing with the 1964 return, the 1 per cent limitation with Business expenses are shown on Sched regard to medicine and drugs is repealed ule C. for taxpayers age 65 and over. A dentist, like anyone engaged in a business, is entitled to deduct all ordinary and necessary expenses incurred in the practice of his profession such as: —Accountant’s fees. —Auto expenses to extent used for professional purposes; not included is commuting to office. —Books if useful life is short; long-life requires depreciation. —Collection fees. Travel Expenses • The 1964 amend —Fees to professional societies; does ments reinstate the pre-1963 policy for not include contributions to political ac travel within the United States, which tion committees. policy permits deduction of the full —Dental meeting costs ; includes regis amount of traveling expenses incurred tration fees, room, meals, transportation, on trips which are primarily for business tips. purposes. The rule for foreign travel —Costs of defending a professional lia remains the same as in 1963 ; for example, bility lawsuit. the traveling expenses (including meals —Dues in dental societies and other and lodging) of a combined business- organizations for a business purpose. personal trip, have to be allocated be —Educational costs (see Educational tween the expenses for business and Expense). expenses for personal reasons, and only —Entertainment ( see Entertainment the business portion is deductible. Expense). —Fire, casualty and theft losses to ex tent not compensated by insurance. TAXABLE INCOM E —Gifts to employees and others for Income from the following sources is tax business reasons. able as income from the practice of a —Instruments with life of less than profession, and as such, must be reported one year. on Schedule C. —Premiums for such policies as pro —Professional fees. fessional liability, premises liability, and —Profits from a professional partner fire and theft insurance on professional ship. property.
REPORTS OF C O U N C ILS AND BUREAUS • 149
—Interest on indebtedness arising out of professional practice. (Interest on per sonal indebtedness is deductible on Form 1040.) —Laundry costs of linens, uniforms, and so on, connected with practice. —Legal fees in connection with profes sional practice. —License and reregistration fees neces sary to maintain practice. —Magazines and newspapers for wait ing room. —Maintenance of office, including util ities. —Office supplies, bookkeeping sup plies. —Professional journals and periodicals. —Rental space for office. —Repairs to equipment. —Utilities and other expenses of up keep of dental office. —Salaries to assistants, hygienists, and so on, including contributions to em ployee pension plans. —Taxes on personal and real property used in professional practice. —Telephone and telephone answering service. —Traveling expenses; for example, vis its to patients, attending dental meetings, trips to hospitals. —Surgical gowns or other “uniforms.” —Depreciation on long-life equipment, furniture, books, etc. Wife’s Travel Expenses • A husband may deduct his wife’s travel expenses if he can prove that his wife performed services on the trip which were directly attribut able to, and necessary to, the conduct of his business on the trip. The Internal Revenue Service applies a “necessity of presence test” and it can be expected that deductions for a wife’s attendance at a dental meeting will be denied. The tax courts have indicated that the per formance of some incidental services on the trip does not establish that the wife’s presence served a bona fide business purpose.
Contributions to Pension and Profit Sharing Plans • Contributions to an em ployees pension or retirement plan con stitute an expense of doing business and are deductible. Tax returns for 1964 may include deductions for the dentist’s con tributions to his own retirement plan if the retirement plan has been priorapproved and the deductions conform to the Self-Employed Individuals Tax Retirement Act of 1962, sometimes known as the “Keogh Law.” Educational Expense • Educational ex penses are deductible as ordinary and necessary business expenses of a dentist when the education is undertaken pri marily to maintain or improve existing skills. Allowable deduction is for tuition, fees and travel expenses. Entertainment Expense • A dentist may deduct the costs of entertainment, pro vided that he can establish that the expense was “directly related” to, and “associated” with, his practice and that the entertainment occurred directly be fore or after a substantial and bona fide business discussion. The dentist must show something more than that he ex pected to get referrals or patients as a result of the entertainment. Professional Office and Residence in One Building • All expenses which can be allocated to the business use can be de ducted as business expenses. The alloca tion must “clearly reflect income,” and if it does, the method of allocation is acceptable.
150 •J . AMER. DENT. ASSN.: Vol. 70, Jan. 1765
Depreciation • The dentist can use any of several methods of computing depreci ation and elect the one most beneficial to him. Regardless of the method used, the dentist may deduct in the year of acqui sition 20 per cent of the cost of the prop erty which has a life of six years or more.
DECLARATION OF ESTIM ATED TAX
In general, an individual is required to file a declaration of estimated tax, Form 1040ES, and to make quarterly payments in advance of filing the annual income tax return if his total expected tax ex ceeds his withholding by $40 or more. Dentists who are self-employed must file a declaration if their expected income, not subject to withholding, is more than $200 for the forthcoming year.
Rental Costs • Equipment rental costs are deductible business expenses. If the equipment is subsequently purchased from the lessor and rentals applied as part of the sales prices, the rental costs are not deductible. In such instances the total PERSONAL DEDUCTIONS cost of the equipment is either depreci ated or deducted as an expense, depend These are deductions personal to the ing on the expected life of the equipment. dentist as an individual as opposed to deductions in the course of his Dues to Social, Athletic and Sporting professionalincurred practice. The following check Clubs • It is necessary that the club be is applicable to all taxpayers who used primarily for business purposes be list elect their deductions rather fore any dues or fees will be deductible. than totakeitemize the standard deduction. A And then, only that portion allotted to dentist is entitled to take the standard business use will be allowed. deduction even after he has deducted on Schedule C the ordinary and necessary Lobbying Expenses • Contributions to business expenses. candidates, political parties and political —Charitable contributions. action committes are nondeductible. —Interest expense. Dentists may take deductions for certain —State and local taxes, including real types of legislative activities: for exam and personal property taxes, sales tax and ple, costs of appearances before or com state income tax. munications with legislative bodies, and —Medical and dental expenses, in communication of information to a dental cluding medicines and drugs and costs of society. All expenses must be in connec travel to a doctor or hospital. tion with existing or proposed legislation •—Medical appliances, including hear which is of direct interest to the dentist. ing aids, prosthetic appliances, orthopedic shoes, and so on. —Hospitalization and insurance pre Reimbursed Expenses • A dentist serving as a committee member or in some other miums for medical insurance. —Casualties and theft losses. official capacity wherein he is reimbursed —Costs of preparing income tax re by the dental society while away from his practice must report this sum as in turn. come in certain cases. If the reimburse ment is equivalent to actual expenses, then it need not be included in the tax return. If reimbursement is in excess of, or less than actual expenses the total amount of the reimbursement must be added to gross income and then all actual expenses may be deducted.