The Optometry Money Podcast

5 Key Tax Planning Levers Optometrists Need to Know

• Evon Mendrin • Episode 147

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Tax planning is more than just finding deductions—it’s about pulling the right financial levers at the right time. In this episode, Evon Mendrin, CFP®, walks through the five key areas of a tax return that optometrists and practice owners should focus on when working with their financial and tax professionals. 

By understanding these levers, you can reduce surprises at tax time and unlock smarter planning opportunities for both your practice and your personal finances.

What You’ll Learn in This Episode:

  • How to project your income trajectory for the year (and why clean bookkeeping is essential).
  • Why reviewing your tax withholdings and estimated payments now can prevent big surprises later.
  • The role of Adjusted Gross Income (AGI) in unlocking or losing out on credits and deductions.
  • Planning strategies around itemized deductions (and how the new rules on SALT and charitable giving affect you).
  • How to manage your Qualified Business Income (QBI) deduction as an optometry practice owner.
  • Using your taxable income and brackets to strategically manage your overall tax liability.
  • Practical ways to combine these levers—like retirement plans, charitable giving, and reinvesting in your practice—for maximum impact.

Resources & Links:


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.

Evon:

Hey, everybody. Welcome back to the Optometry Money Podcast, where we're helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I am your host, Evon Mendrin, Certified Financial Planner practitioner, and owner of Optometry Wealth Advisors, an independent financial planning firm just for optometrists nationwide. And thank you so much for listening. Appreciate your time and your attention. it's been a few weeks. It's been a couple weeks since we put out a fresh episode, within the practice, we're going through another stage of growth and wanting to make sure we're taking care of the families we are privileged to serve and our clients. we took a step back from the podcast, but happy to be back behind the mic. And, uh, wanted to talk today about key tax planning levers that you can think through as you look at your practice profit to the rest of the year, as you are talking with your own professionals, about tax planning through the rest of the year, wanted, don't you share some things I'm seeing as I'm going through that with my own clients. This is the time of year where we are, uh, going through those initial tax projections with clients. I, I've projected out the profit and loss, expected profit and loss throughout the rest of the year. I, I've gone through that with clients who I'm communicating, working closely with their tax professionals. Ultimately to see where are the opportunities to either improve on or solidify our tax planning. As I've gone through those with our clients wanted, don't you share some things that I'm seeing. and some key opportunities, key tax planning levers that you can consider for your own tax planning. Because if you look at the flow of a tax return, for example, and for us, when we look at those projections, there are certain key areas of that tax return that when we aim for those key areas, when we, when we pull certain specific levers, can have a really high impact on ultimately the result. And so this is gonna take a, this episode is gonna take a a higher level overview at those key planning areas and. And we often just want to talk about the strategies, right? What are the fun, exciting strategies? What are the tactics? What magic ways can we get those deductions? That's usually what we wanna talk about, but I think it's useful to take a step back and say, okay, what are we really planning around? It, it may not make sense to just pile and pile on deductions in one tax year or pile and pile on tax deferral into one tax year or depreciation in one tax year We really wanna take a look at our, our tax plan and say, well, what are we targeting and what are we actually planning around? And once we have an idea of that, you can then turn to, okay, what are our tactics? What are our certain deductions we're gonna use? And things like that in order to get those results. And so those are the things I wanna talk about today. and before I do that, I wanted to say if you are planning to head to Vision Expo this week. I will be there on Thursday and Friday. Would love to connect with you, talk to you about what's going on in your life and in your practice. And, if you'd like to connect in person, you can always reach me here at Evon, evon@optometrywealth.com. Uh, would be great to see you there, but let's dive into tax planning and one of the first things we want to project out and get a pretty good grasp on is our income trajectory for the year. And what are the different types of income that we're planning around? There's probably going to be business profit if you are in a practice, if your practice is taxed as an S corporation, there's gonna be a wage for you, potentially your spouse as well. do you own real estate? Is there going to be rental income or losses? Is it commercial real estate connected to the practice or short-term rental, or is it a, a long-term passive rental? are there taxable brokerage accounts? And what kind of income and dividends and interest are those brokerage accounts? going to be kicking off and have you sold large assets? Are there gonna be capital gains either from those investment accounts, from selling a rental property, from selling a home, higher than the, the exclusion amount? And so we wanna get a good feel for what type and what amount of income we are reasonably projecting out throughout the rest of the year. And obviously with an Optometry practice there, how the rest of the year unfolds isn't set in stone. That's something we have to project out and use reasonable assumptions, including things like seasonality so these projections are always sort of living, breathing projections, right? We wanna update them as the year goes on, but wanna at least get a reasonable feel for what our income's gonna look like this year. And a really important note here, one thing that's really important is clean, accurate bookkeeping in your practice. And if you don't have clean, accurate bookkeeping, if you don't have any bookkeeping software and you're just sending your accountants all the receipts and everything at the end of the year for tax purposes. It's really difficult to do any type of, proactive planning around taxes, or I would add even cashflow in the business. You really want to have clean, accurate bookkeeping in the practice, and that's updated on a regular basis, so you can make accurate projections and make good decisions based on that data. And so now that we've gone through that exercise of putting all the income building blocks together, we have a good feel for what that income and Expenses are gonna look like through the rest of the year. Now we can talk about our first sort of planning lever, planning opportunity, and that is your tax withholdings and estimated payments. And this is, could look a couple of ways. So for example, if you are the owner of an S corporation, you're gonna see a wage, and that wage is going to be withholding federal tax payments, and potentially state tax, uh, withholdings as well, depending on the state that you're in. And in addition to those payroll withholdings, you may also be paying quarterly estimated tax payments. At this point. You've already likely made, the first three payments, uh, September 15th was the most recent one, and now we're talking about January. January 15th is the next one. And so once we've projected out sort of the tax projection for the year, we wanna get a look at where are our tax payments, what's the trajectory of tax withholdings, and are we on track? We wanna know that your withholdings and estimated payments are on the same trajectory, on the same track with our total tax we're projecting or are we expecting a substantial tax due, at tax time? Or are we expecting a substantial refund due at tax time? This isn't the most exciting or glamorous form of planning, but one of the biggest frustration for many clients I, I talk with are surprises at tax time. And one of the easiest ways to bring down the stress of tax time is to at least get your withholdings and estimated tax payments on track for what we expect that total tax to be. And ultimately our goal is just no surprises. And so there's a couple targets you might aim for with, for withholdings. the first target are the safe harbor rules, meaning the IRS says if you withhold or paying a certain amount throughout the year, uh, they won't, they won't apply under withholding penalties. And there's two versions of the Safe Harbor rules. Number one is if you withhold at least 90% of this year's total tax, you won't have to pay an under withholding penalty. The second version is if you withhold at least 110% of last year's total tax. You won't be subject to that penalty. So it's either gonna be based on this year's total tax or last year's total tax. And for the most part, if you expect your taxable income to be roughly the same or higher, uh, than it was last year, you're probably going to want to use that 110% of last year's total tax. In fact, a lot of the estimated tax payments that are suggested on those tax returns each year are gonna be based on that safe harbor amount. But if you know your income's gonna be much lower this year, if you know your, for example, your practice profit's gonna be much lower this year. Uh, one client, for example of ours, they lost in an associate doctors. total doctor hours came down. They, they were gonna see lower revenue and profit for this year. So that's one example. If you know your taxable income's gonna be lower this year than it was last year, maybe you're gonna use that 90%, uh, of current tax. So one target's gonna be one of those safe harbor rules just to avoid that under withholding tax. And of course that second target's gonna be as close as possible to the anticipated tax due at tax time. Or at least saving up enough dollars to get you to that point at tax time. So number one, reviewing your tax withholdings. You're reviewing your tax payments, making sure we are on the right track so that there's no surprises in April. And it's not as painful as it might be. The next thing we wanna look at is your adjusted gross income, which that's a, a tax jargon term. What that means, essentially, if you look at your tax return, it's all of your sources of income minus a bunch of deductions. And, this adjusted gross income, AGI is a really important planning line item because it impacts your eligibility for certain deductions and credits as well as additional taxes. So, for example, uh, the child tax credit, which is a dollar for dollar offset of the taxes that are due, the child tax credit is$2,200 this year for each qualifying child under age 17. that child tax credit begins phasing out at$200,000 of AGI if you are single or$400,000 if you are married, filing jointly. And so once you start to get to those ranges of AGI, that child tax credit begins to phase downward and so that's an important opportunity we wanna plan around. If your adjusted gross income, if you are married, finally jointly is$250,000 or higher, and you have any investment income, like capital gains, dividends, interest, things like that, that investment income starts to become subject to the 3.8% net investment income tax. it's also really important for student loan planning because AGII is the default way that income-driven repayment plans, calculate their payments for the next 12 months. And if you are using income-driven plans towards forgiveness, that IDR payment is essentially a 10 or 15% tax on much of your income. That adjusted gross income is really important for student loan planning as well. So we wanna keep a really close eye on this and what we might want to target, for example, we might wanna look at AGI and say, okay, are we phasing out of the child tax credit? For example, what is our adjusted gross income expected to be? And what are we phasing out of? Because that becomes a target we can plan around. We can try to bring down that AGI number in order to phase into again, for example, that child tax credit. and when planning around this, it's important to look at which deductions or tax deferrals directly impact the adjuster gross income number. Many deductions do help to lower that, but there are other deductions that are below that on the tax return. And so we want to prioritize, for this, Things that are 401k contributions, for example, or simple IRA contributions, HSA contributions, health insurance, uh, self-employed health insurance, premium deductions, for example. Business deductions or, or depreciation on real estate, for example. Those are all examples of, of deductions and tax deferrals that directly lower adjusted gross income. And so those are the things we might want to prioritize when trying to plan around that. an example of something that is a deduction but doesn't lower that adjusted gross income number on the tax return is the standard deduction or itemized deductions, which leads us to the next planning lever. Number three, itemized deductions. And, in every taxpayer, if you look at your tax return, if you look at the way taxes work, every taxpayer can choose between a standard deduction amount. Or you can stack up a list of itemized personal expenses. And if that list is higher than the standard deduction amount, then you can take that list of itemized deductions. for 2025, the, the standard deduction amount is 15,750 if you are single or married, filing separately, or 31,500 if you're married, filing jointly. And so that's sort of our target there with itemized deductions. there are. And what's on that list? Well, it's it's mortgage interest expense. Uh, well, it's mortgage interest expense. It's charitable contributions, donations to nonprofits, charities, churches, state and local taxes, certain Healthcare expenses. And so those are the expenses we're looking at. And there's a couple really important, One Big Beautiful Bill Act updates that we wanna take into account for this year when planning around itemized deductions. Number one is the increase in the cap for the state and local tax deduction. from 2018 to now the amount of state and local taxes that you can take as an itemized deduction was capped at$10,000, which severely capped you if you lived in a high state tax state like California, potentially New York, New Jersey, and as a result of the One Big Beautiful Bill Act that was recently passed this year. That state and local tax cap deduction cap has increased from$10,000 up to$40,000. However, that increased cap begins to phase down for higher earners once your, What's effectively your adjusted gross income gets to 500,000, and so that 500,000 to$600,000 of income, that range becomes a really important, really important planning range based on how that higher deduction phases down. It never gets below$10,000. But that a hundred thousand dollars of income if you're married, filing jointly, can be very expensive because of the way that phase is down. So that increased state and local tax cap is something we're keeping an eye on for those higher earning, mostly practice owners within that income range. The second thing we're looking at are charitable deductions. Because the rules for charitable deductions didn't change for this year, but did change for next year. one of the things that changes that there is a charitable deduction available, whether you itemize your taxes or not. It's, it's small, it's limited, but there is going to be something available next year even if you don't itemize your taxes. So we're gonna have to start keeping receipts again, you know, for, for those charitable contributions. But the other thing that changed is that starting in 2026, there's an AGI floor that your donations to charity has to get through order for them to be deductible. So starting in 2026, there was a half of a percent AGI floor, meaning that your deductions have to be more than a half a percent of your adjusted gross income. And once they get beyond a half a percent, then they actually start to get deductible. For example, if your AGI is$300,000, a half a percent of that would be$1,500. And so the first$1.500 of your donations aren't actually going to be deductible. It's everything above that. So this is the last year to make tho those donations without being subject to the AGI floor. And if your AGI is. Relatively high. Well, that's a higher floor that you have to get to in the next year and beyond. In general, you know, due to the higher standard deduction amount, uh, what we've seen work very often are bunching charitable donations into. Like every other year or every third year, for example, in order to get those itemized deductions higher than that standard deduction amount. That's something that probably still makes sense moving forward since the standard deduction has been made, quote unquote, permanently higher. And so, whether that's donating directly to the nonprofit or charity or church. Or donating to a donor advised fund. I think that that those bunching of charitable contributions continues to be something we want to keep an eye on moving forward. And so those itemized deductions are something we want to, to take a look at and plan around. Are you going to be hitting those phase outs for the state and local tax deduction cap? what are your charitable contributions or are they going to be high enough? Should we accelerate maybe next year or the next two years into this year and bunch'em together in order to make them, useful from a tax planning perspective? The next lever we're looking at is the qualified business income tax deduction. And this is a 20% deduction for, for you business owners, PR and practice owners that own a pass through business. So if your business is a sole proprietorship or taxed as a sole proprietorship, if it's taxed as a partnership or an S corporation. That's you, you're eligible for this. And this is a 20% deduction of what's effectively net operating income of the business. And for Optometry. Optometry generally is what the IRS calls a specified service business. Uh, which means that once your taxable income, before the deduction. Reaches certain thresholds, you start to phase out of the QBI deduction, meaning you start to little by little, be eligible for less and less of it, and then once your taxable income before that deduction gets to a certain higher threshold, then you phase out of it altogether, which can be substantial depending on the profit of the practice. So. In 2025, the thresholds, if you're single, are$197,300 and you have$50,000 of income until you hit the top threshold. Uh, so that top part's$247,300, and if you're married filing jointly, that threshold starts at taxable income of$394,600, and you have a hundred thousand to go until you hit that top threshold of$494,600. And so those are the ranges we're planning around when we look at this QBI deduction, this is a really important lever we wanna look at, are we phasing out of it, and are there opportunities to bring down that taxable income in order to phase you back into it more and more. And then lastly, we're looking at taxable income. And this is obviously important because of that qualified business income deduction we talked about. but also it's important because taxable income determines the actual tax rates your income's gonna be tax at, taxable income is what goes through those tax brackets to figure out what is your tax due. And so that tells us, okay, what is your marginal tax rate? Meaning the, the, the tax rate that your last or highest dollars of income are gonna be taxed at? Is it gonna be 10%, 12%, 22, 24, 32, 35, and so on and so forth. And it's the same thing for capital gains type income. So if you have long-term capital gains, meaning you've sold an investment asset that you've owned for longer than a year, or if you have a type of dividend called qualified dividends. Those are gonna be taxed at 0%, 15% and 20%. And whatever that tax rate is, it's gonna be determined by your taxable income. And so if we can look at opportunities to bring down that taxable income to potentially bring you into a lower tax bracket, for example, maybe, out of the 32% and into the 24.% Or if we can help keep you out of the next tax bracket, for example, avoiding that 8% jump from 24% to 32%. We wanna look at opportunities to do that and manage those tax brackets appropriately. Same thing for capital gains. Hey, if we can get you out of the 15% and into the 0%, like that's, that's phenomenal, right? We wanna look for opportunities to do that. And so those are sort of the biggest opportunities for planning that I'm seeing as I'm going through these tax projections with clients, having these conversations with clients and their tax professionals. It's going to be first getting a feel for the income trajectory and what are the different types and amounts of income we're gonna be working with. And then looking at withholdings and estimated payments. Are we on track? Do we need to make adjustments? Well, we still have time to do so. looking at adjusted gross income. Looking at are we phasing out of anything and what can we do to bring down that adjusted gross income number to phase us back into those things. Looking at itemized deductions, is there planning opportunities with itemized deductions to bring them above and beyond the standard deduction amount? And then looking at things like that state and local tax cap and charitable contributions. Then looking at the QBI deduction, are we phasing out of that? And can we phase you back into that? And then lastly, looking at your taxable income and managing our tax brackets, are there opportunities to bring you into more favorable tax brackets? Or other opportunities to keep you out of an additional tax bracket. And the fascinating thing is, when you start to look at these things together, your potential deductions or tax deferrals can have potentially a much higher impact than just the marginal tax bracket that you're in. And what I mean by that is that very often we'll see that, okay, if you are in the 32% tax bracket, if you get a$10,000 deduction, you are thinking, okay, you're saving 32% of$10,000, which is gonna be$3,200. Right? That's, that's kind of what we're thinking. You're saving 32% on that deduction. However, when we combine these different tax planning levers together, we can see that a deduction can lead to a much higher effective tax savings, like an effective tax rate than just that marginal tax rate that you're in. If you're able to, for example, if you're able to bring down your adjusted gross income and bring down that taxable income. You may be able to do several things at once. You may be able to phase into a higher child tax credit you, which will offset dollar for dollar the tax that's due. May be able to increase your QBI deduction, which lowers your taxable income, you may be able to increase those itemized deductions, which lowers that taxable income. So if you pull several of these levers at once, a$10,000 deduction, for example, may have a$20,000 decrease in taxable income, and a very healthy, effective tax rate you're saving at Now I'm just throwing out examples, right? That's that's, that's not based on any specific example I, I've been looking at. But that's, that's sort of the concept. When you can pull several of these levers together, you can have a much larger impact than just that marginal tax bracket you're looking at. And so those are some opportunities you can start to think about as you are having these these conversations with your financial professionals. As you're having these conversations with your tax professionals, you can, you can look at these different opportunities, these different levers, and ask yourself, Hey. What are the types of income I'm working with? Are we phasing out of anything that we can try to phase back into? are we phasing into any additional taxes that we can try to phase out of? Where are these opportunities and levers to pull? And how do you do that? Well, that's where those conversations become really important because you can see what are the opportunities that are specific to you, right? You ultimately, you want to get a projection done by your professionals and look at the opportunities that are specific to you. It's gonna be, generally speaking, some combination of planning in the business, looking at opportunities to reinvest in the business potentially. For example, especially as we get into Vision Expo, buying equipment that has a true business use and a return on investment, or whatever it may be, reinvesting back into the practice and using those expenses as tax deductions or using depreciation. or it could be other things like if your kids can, can legitimately do work in the practice, maybe you can add your children to payroll and, and use that as an opportunity for tax planning as well. So it's gonna be some opportunity of planning in the business. Or evaluating the business entity. Depreciation planning around real estate, especially if you're buying the commercial real estate of your practice or a or if you own a short term rental and you follow the short term rental rules, because tax losses from that type of real estate may be used to offset all of your other active type income, like practice profit. And especially now that the One Big Beautiful Bill Act reintroduced a hundred percent bonus depreciation. and that can potentially be combined with a cost segregation study and, and that real estate, that's another potential opportunity to use there. It could be using retirement accounts, so using your 401k in the practice, for example. and that's not only the employee contributions, but also profit sharing contributions if the cash flow and the demographics of the practice makes sense. For very mature, very heavily cash flowing practices, maybe a cash balance plan, if that makes sense. So looking at your retirement plan and asking, can we get the most outta this retirement plan? Maybe it's time to switch from a simple IRA over to that 401k plan now that we can do that midyear. Or it could be using charitable contributions as we talked about using, for example, donor-advised funds to bunch those contributions in the current year, benefit from that tax planning and then, and then actually make those donations over the coming years outta that donor-advised fund. Those are some general sort of categories you might think around, but ultimately it comes down to. What do your own professionals advise? It's going through that projection with your own, your own professionals. Having those conversations with your own financial and tax professionals. And if you aren't, reach out. Would love to start these conversations. We're getting into the end of the year, right? We're getting into the fourth quarter. Pretty soon it's time to start thinking about tax planning for the year and seeing what opportunities are ahead of us. And in addition, one thing I'll link to in the show notes is an article I did for Independent Strong, all about these key tax planning levers for practice owners and so that'll be something you can find in the show notes. let me know if you have any questions. You can reach me here at Evon, evon@optometrywealth.com. Uh, if you wanna talk about what we've talked about today on the podcast or if you just wanna chat in person at Vision Expo. Always happy to have a conversation, and appreciate your time we will catch you on the next episode. In the meantime, take care.

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Evon Mendrin CFP®, CSLP®

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