The Optometry Money Podcast Ep. 150: Four Tax Planning Levers You Can Still Pull for 2025

[00:00:00] Hey everybody. Welcome back to the Optometry Money Podcast. With water help and 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 and independent financial planning firm just for optometrists nationwide.

Evon: And thank you so much for listening. appreciate your time and I’m excited to dive into today four tax planning levers You can still pull before filing your 2025 tax return.

And it is 2026. We are in January, and very often we think, there’s not much we can do for 2025. We’re already past the new year. and it is true that most tax planning happens before December 31st, but certainly not all of it. Even though it’s already 2026, there are still a few levers you can pull that can still have a majorly positive impacts on 2025’s, taxes.

And we’re gonna dive into those levers today.

But first we had a message to the show from a [00:01:00] listener in San Antonio, Texas, with a question, so wanted to answer that question here. So the listener asked if we had a podcast about using a commercial broker to navigate, commercial real estate decisions. And in fact, we do. That’s gonna be episode number 108, navigating Commercial Real Estate Decisions for your Private Practice with Colin Carr. And I’ll throw a link to that episode in the show notes. And hopefully that gives you the resource you’re looking for.

And with that answer, let’s dive into today’s episode

Tax Planning Lever #1 – IRA and HSA Contributions by April 15th

Evon: And we’re gonna start with the smaller levers first. And these are some things that anyone can do. the first lever we can pull are IRA and health savings account, HSA contributions. And, this can be done up until the April 15th tax filing deadline. you can still make IRA contributions through 2025.

That is $7,000 if you are under 50 with an additional $1,000 bump if you’re over 50. so that’s something you can do to either a traditional IRA or a Roth IRA. Now keep in mind there are certain income thresholds to keep in [00:02:00] mind. for the most part, optometrists, , unless you don’t have access to a retirement plan at work, you’re probably not going to be able to make a traditional IRA contribution and still get that deduction.

You’re probably only going to be able to make after tax non-deductible contributions. So most of the time we’re trying to get really those dollars into a Roth IRA, because there are income thresholds to where if you have access to a retirement plan at work. or if you’re married and your spouse has access to a retirement plan at work, at certain income levels, you cannot get a deduction for those contributions to a Traditional IRA anymore.

same thing if you are filing taxes separately for student loan planning purposes, you’re basically gonna be ineligible for that deduction and for the most part, we tend to be leaning towards making use of that Roth IRA.

Now, that’s not gonna have a, an impact on 2025’s tax outcome. This is more of a long-term retirement tax planning decision. and there are [00:03:00] also income thresholds to keep in mind for Roth IRAs at a certain point of income. So for example, if you’re single, around $150 to $165,000, and if you’re filing taxes jointly.

$236,000 to $246. Once you get to those income thresholds, you start to be ineligible to put money directly into a Roth IRA. Now, that doesn’t mean you can’t make use of a Roth IRA because what you can do is what’s commonly called the backdoor Roth IRA contribution. And while we are constantly talking about this, , backdoor Roth IRA contributions continue to confuse optometrists all over the country.

And so what is that? it’s two separate transactions that we cobble together, and give it this nice fancy name. what it is, is you first make a non-deductible contribution to a traditional IRA and you’re not gonna get a deduction, right?

So those are after tax dollars going into that, and then you just about immediately [00:04:00] convert or transfer those dollars from that traditional IRA Over to your Roth IRA. And if done right, it’s essentially the same outcome, with a few extra steps.

Watch Out For Tax Filing Quirks and the Pro-Rata Rule With “Backdoor” Roth IRA Contributions

Evon: And there are some important things to keep in mind in terms of how those things show up on your tax return, because at this point in 2026, if you haven’t done it, each of those different steps show up on different tax returns.

The contribution to the traditional IRA, that is a 2025 contribution, so that’s gonna be a part of your 2025 tax return. You want to let your tax professional, you made that contribution. But the conversion, that conversion from a pre-tax IRA account, Traditional IRA over to a Roth IRA that’s recorded on your tax return in the tax year it happens. And so that part of it won’t actually be showing until the 2026 tax return you’re gonna file around April, 2027.

So there’s a couple nuances in how these things [00:05:00] actually show up on your tax returns. Let your tax professional know, or better yet, have your financial advisor let your tax professional know exactly what’s happening and when it happened and they’ll sort through that.

And then you’ll wanna track this on form 8606 in your tax return. It records all this happening. And so that backdoor Roth IRA contribution is still something you can do regardless of how much income you make.

Now there is a certain rule called the pro-rata rule, that you wanna keep in mind.

All throw a link to this in the show notes, but basically if you have any other pre-tax IRA dollars, so it could be a traditional IRA, it could be a simple IRA, it could be a SEP IRA, the way that the IRS views that is all pre-tax IRA dollars are lumped together as this big one IRA and so if you do this backdoor method, when you do that conversion step, the IRS sees that as you converting part of those pre-tax dollars to the Roth IRA.

And that’s gonna cause some of that to be taxable income. Which we don’t want. We wanna [00:06:00] avoid that. And so that’s something to keep an eye. If you have any pre-tax IRA dollars, you might want to explore some options. For example, moving those pre-tax IRA dollars into a 401k plan. ’cause 401ks, don’t count for this, it’s only the IRAs.

But talk to your professionals about what makes the most sense in that situation, but something you wanna keep an eye on. So IRA contributions are something you can do up until the April 15th tax filing deadline. As well as health savings account contributions.

And if you are, on an individual plan that qualifies a high deductible plan, that’s a $4,300 maximum contribution. If you’re on a family plan, that’s $8,550. And that’s something you can do as well. there’s also an age 55 and above catchup. Now it’s a thousand dollars, and if you’re married.

And you’re on a family plan. Each spouse has to have their own HSA account to make their own individual catchup contribution. So if you’re on a family plan and making all those contributions to one spouse’s HSA, for that catchup you [00:07:00] need to have separate HSA accounts. So IRAs and HSAs, those are the useful, but r elatively smaller levers you can pull.

Tax Planning Lever #2 – 529 Contributions If Your State Provides a Tax Benefit

Evon: The next lever is a 529 account contribution, and you usually don’t think about 529 plans as something that’s gonna help you with your current tax planning, but certain states allow you to have a tax benefit for.

Contributing to 529 plans. some states require you to use that state’s plan. Other states will allow you to use any state’s plan, and, many of them will allow you to make those contributions up until that April tax filing deadline. So check with your 529 plan. Check with your state. Check with your tax preparer to see what the rules are or talk to your financial advisor.

But that’s a relatively small tax planning lever. But still something useful if you are contributing to 529 plans, for you or your kids.

Tax Planning Lever #3 – 401(k) Profit Sharing Contributions

Evon: Lever number three, and now we’re starting to get into the more impactful levers and lever Number three is profit sharing for practice owners. and this is [00:08:00] something connected to your 401k accounts.

If you think about that 401k plan, you have the employee amount that you and all your employees can fund. You have the employer match, and then you have that third layer on top of that, which is the profit sharing, which is where the business is contributing to all of the employees, in 401k accounts.

But we’re trying to skew that contribution more towards the owners. rather than the team as a whole. And so profit sharing contributions are something that you can actually make and do up until the tax filing deadline of your business entity. So if your business entity is a sole proprietorship, it’s gonna be the April 15th deadline.

If it’s taxed as a partnership or an S corporation, the deadline for that business tax return is in March. So you have an earlier deadline for those particular businesses. Most practices we see tend to be s corporations, but it does include the extension.

So if you file an extension for your business tax return and your personal, you can actually extend that [00:09:00] out to, to as late as September, potentially October if you’re a sole proprietor. So profit sharing contributions can be a pretty substantial lever for both tax planning and helping you to save for retirement, and if you don’t have a 401k plan in the practice, you can actually still start one before the tax filing deadline of your business entity, but only for those employer profit sharing contributions. You can’t still make employee contributions if you have employees.

So if you are wanting to make those profit sharing contributions, the demographics of your practice makes sense. That’s something you may want to consider. if you are self-employed, maybe you have consulting work on the side.

Maybe you’re a 10 99 contractor. You can also open up a solo 401k plan. And , not only do you have the employee and profit sharing contributions,

but you also have those after-tax contributions as well, which you can convert to a Roth account for what’s commonly called the mega Backdoor Roth contribution. and so, that’s something you can consider as well if you are, if you have, self-employment type [00:10:00] income.

Do Profit Sharing Contributions Make Sense For Your Optometry Practice?

Evon: Now it’s important to say profit sharing contributions don’t always make sense. So how do you think about whether it does? W ell, it comes down to a few things.

Number one, what does a profit sharing calculation show that you’re gonna have to put into your accounts or you and your spouse’s account if both of you’re in the practice versus all other employees?

Both of you will be highly compensated employees, so it’s really important that you’re working with a good plan administrator to model that out. and the method of profit sharing is really important.

I’m gonna throw a link to another episode I did with Matt Ruttenberg, a plan administrator that does phenomenal work with retirement plans, and we talk about the differences in different methods of profit sharing from the. What you’re probably looking for most likely is a new comparability type profit sharing plan.

So the type of profit sharing is really important. And you wanna look at that projection from, from the administrator. And you wanna see how much is allocated to your account versus everyone else’s.

And then you wanna look at a tax projection that hopefully [00:11:00] you’ve put together with your financial advisor and your tax professional and to see, okay, if you made that contribution, what would be the actual tax impact?

If you’re at a relatively high tax bracket?

if you’re in this sort of golden planning zone where you’re starting to phase out of certain deductions and credits like the QBI deduction, child tax credit, for example, the higher threshold for state and local tax deductions, those profit sharing contributions can be a pretty effective lever for helping you to face back into those.

As well as get the deduction at a pretty good marginal tax bracket. So what is the actual tax planning situation? Is it gonna have a strong impact on the tax planning or are you gonna be deferring at 22%, 24%. You wanna see what the real impact is and.

And importantly, if you’re at a 22 or maybe 24% tax rate, you’re not phasing outta the QBI deduction. Keep in mind like your profit sharing contributions are lowering your business profit [00:12:00] and are lowering that QBI deduction. So if the demographics of your practice and the amount of wages you paid yourself last year, if that’s gonna lead you to pay a lot of money into your employee accounts versus the tax impact, maybe it doesn’t make sense.

Maybe you hold off for another year and evaluate that later this year for 2026.

The other thing to keep in mind is liquidity. if you are struggling with liquidity, if you have a goal of building up reserves to the practice or for the household, maybe you need that cash elsewhere.

You don’t wanna necessarily tie it up in the retirement plan. maybe that doesn’t quite make sense as well to make that profit sharing contribution. Maybe it simply makes more sense for you and the business, or maybe for you and your household to hold off. Build up those cash reserves, use that cash as needed, and then revisit that later this year.

Don’t Forget About Cash Balance Plans for Mature Optometry Practices

Evon: But when it works, profit sharing can be magic. And I, I would say the same thing. If you are a larger practice with really strong, consistent cash flow, and you’re wanting to defer, a hundred thousand [00:13:00] dollars plus, into a plan, cash balance plans can also make sense.

So talk to a plan administrator and your Advisors and see whether that can make sense for you. So that’s lever number three. Profit sharing contributions, potentially cash balance plans.

Tax Planning Lever #4c – Cost Segregation Studies for Investment Real Estate

Evon: And then lastly, lever number four for you, real estate investors cost segregation studies. And this is for you if you’re buying real estate rentals, whether it’s commercial, residential, if you have short term rentals, this is something you wanna keep in mind as well as if you own the commercial real estate that your practice operates under.

so what is a cost segregation study? Cost segregation study is basically looking at a property. It’s an engineering study that looks at a property and then separates out all the stuff inside the structure that has shorter depreciation schedules, and especially if you purchased and put into service your property after January 19th, 2025, because those properties are eligible now for a hundred percent bonus depreciation.

And so the cost, the actual cost [00:14:00] segregation study is something that you can, that you can actually get before that tax filing deadline as well. it doesn’t always make sense, because what it’s trying to do is accelerate a lot of that depreciation into the 2025 tax year, or if it’s for this year, this current tax year. And keep in mind that’s tax deferral, right?

You’re not, unless you die with these properties, eventually when you sell, you’re going to have to deal with that depreciation through depreciation recapture, and so when might a cost segregation study make sense?

when you’re dealing with reasonably high tax brackets, you know, that that’s gonna have a de a pretty decent impact. It also depends on the property too, the type of property you have, how much of it is structure versus land, and what’s inside of that structure.

It depends on how long you plan to hold the property. If you’re gonna sell it in the near future, it may not make sense because of that depreciation recapture. And then what do you plan to do with those tax savings? This is really important. The reason that this works is [00:15:00] because you can take those tax savings and immediately reinvest it.

You are taking advantage of the time, value of money. If you’re gonna do a cost segregation study, you’re gonna pay for the study, a huge deduction on your tax return. And then you’re gonna go spend all that tax savings.

Well, it may not make sense for you. You may be better off taking those depreciation expenses over time rather than accelerating that.

And then lastly, how is that real estate treated for tax purposes? if it’s a long-term rental and it’s considered passive activity, and if those losses are gonna be passive losses and all of those losses are gonna be stuck and you have to.

And you have to unwind them over the years. maybe that doesn’t quite make sense.

But if you have a lot of other passive investment activity, other passive rentals, other passive businesses, you can offset that income. Maybe it does make sense or if you can use those losses to offset all of your other, all of your other active income, like your business profit, your wages, in this [00:16:00] case you might have a short term rental and you can meet the short term rental rules or you’re using that commercial property that your practice operates under, and you can group those activities together.

Maybe that’s where this can make sense. So I would argue it doesn’t always make sense, but when it does make sense, it can be a pretty substantial tax planning lever to use.

As long as you’re working with your tax professional and your Advisors to know about the limitations of this, and to have an idea of how that’s gonna impact that tax return.

Final Thoughts for Optometrists Before Tax Season

Evon: And so those are the four levers, IRA and HSA contributions before the April deadline. No extension there. 529 contributions if your state gives you a tax benefit up to the deadline there. profit sharing contributions for your practice owners, as well as if you have a solo 401k plan for you independent contractors or if you have consulting income, also lump into there for larger established practices cash balance pension plans. And then finally, cost segregation studies.

And profit sharing and cost segregation studies. Those are gonna include those extended deadlines too. So going into September for partnerships and s [00:17:00] corporations and going into October for, for everything else.

And so what are your next steps? talk to professionals. Talk to your financial advisor. Talk with your tax professional, talk with your 401k plan administrator. And then look at your options and see what’s available for you. And how would these actions impact that tax projection?

Because everyone’s situation’s different, everyone’s financial and tax planning situation a little bit different. And so I’m hoping to help you see what the possibilities are.

And what can have a pretty meaningful impact on the tax return at this point in 2026. but you need to make those decisions with the advice of your professionals. And if you’re looking for more proactive advice around these same financial decisions, reach out. Would love to have a conversation with you.

You can go to the link in the show notes to check out our website. From there, you can schedule a no commitment introductory call. we can talk about what’s on your mind financially and we can share how we help optometrists navigate these same decisions all over the country. And with that, really appreciate your time.

We will catch you on the next episode. In the meantime, [00:18:00] take care.