Determining a reasonable income distribution plan for your practice is no easy task: you need to consider tax issues, your type of business entity, retirement saving investment goals, and how to build long term practice growth incentives into your plan. Investing in the skills and expertise of an optometry accounting service can help you find your bottom line and determine your salary prospects.

Deciding how much to pay yourself

While you may think you know how much to take out of your practice’s cash flow, there are a few things to consider. If you’re not paying yourself enough, that is usually because there are cash-flow problems and there is not enough revenue to pay yourself a decent wage. This signals that some things within the practice need to change, including increasing revenue through patient visits and product sales and services.

Your salary is much like the rent on your building or the monthly leases on your equipment. If you overspend in your salary, you will end up starving your practice’s bottom line. When it comes time to make key investments in your business to upgrade equipment, expand, and increase advertising, if you’ve been taking too much revenue, your business is unable to take advantage of growth opportunities.

How to calculate your salary

To accurately calculate your salary from your practice’s budget, you will need to keep a few things in mind. First, calculate your:

● monthly net income

● tax savings (at least 30%)

● business debt

Create a business savings plan for:

● cash-flow cushioning

● new staff and training programs

● equipment

● marketing

● emergency funds (3-6 months of expenses)

What is left is what you can draw from comfortably, once you have accounted for your bonus incentives. Your tax agent can provide you with proper calculations and tax projections. Do not forget to factor in retirement investments and other expenses such as personal bucket list items.

Think about your taxes

Depending on what kind of business you own, you may be required to draw a salary instead of business distributions. An accountant at our firm can help you determine whether you need to pay yourself a salary, take drawings, receive distributions, or even use a combination of methods.

Outsourcing your optometry bookkeeping also enables you to easily track and make on-time payments for your self-employment taxes (including FICA and Medicare), along with state and federal income taxes and franchise taxes if they apply. If you pay yourself too much and do not account for these taxes in your salary, you could trigger an IRS audit.

The consensus among highly qualified and experienced CPAs is that an owner should take a salary that you would reasonably pay an associate provider with the same level of training and experience, to avoid tax audits.

Caro and Associates is an experienced CPA tax accounting firm that specializes in optometry accounting. Call our firm today to get the financial advice you need to grow your business via our website or by phone at (206)-497-0671.