The Optometry Money Podcast Ep 166: Mid-Year Tax Check-In – 4 Questions Every Optometrist Should Be Asking

Transcript for The Optometry Money Podcast Ep. 166 Mid-Year Tax Check-In: 4 Questions Every Optometrist Should Be Asking

Introduction to the Episode

[00:00:00] 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.

Evon: Thank you so much for listening today, and on today’s episode, we are gonna be diving into mid-year tax planning, and if you can believe it, it’s already July. this episode’s going live just after 4th of July. Hope your family had a wonderful holiday weekend,and here in July, half the year is already gone.

It’s a perfect time to sit back and take a look at, where do we stand from a tax planning perspective? We have half a year left to still take action, to make an impact. So I wanna go through today four questions that you should be asking yourself as sort of a mid-year tax check-in.

4 Questions Optometrists Should Ask Themselves for a Mid-Year Tax Planning Check-In

Evon: And the four questions are: Where is my income likely to land this year? Number two: Am I paying enough as I go? Number [00:01:00] three: Am I nearing a threshold that changes things? And number four: What levers do I still have to pull?

And these are questions you should be thinking about. These are questions I’m thinking about because at this point in the year for our practice, we are projecting out, the profit and loss and cash flow for practices for the owners, and we are using that information to then start our initial tax projections for the year.

So this is a very practice financials, tax-heavy time of year. and it’s a good time of year to do that because we already have six months of history. We already can see where the practice has gone up until now, and we can start to take a look at where are the opportunities to impact the tax results one way or another.

It’s a perfect time for you to start asking yourself these questions and asking your professionals these questions a- and- and to see where you stand and where you can take action.

Question 1: Where Is Your Income Likely to Land This Year?

Evon: And so let’s dive a little deeper here and start with question number one: Where is my income likely to land this year?

And this is where everything starts, right? What income [00:02:00] do we have in the tax year, and how is it going to impact our tax return? And we want to start with the profit and loss if you own a practice, right? The primary driver of your income is gonna be the collected revenue in the practice, the expenses you’re paying in the practice or deductions, and what is the taxable profit for the year.

If you are an S corporation owner, then you’re gonna be paying yourself a wage as well. But that’s our primary building block, is what are we getting from our, from the practice that we’re working in? if you have a spouse that’s working as well, obviously your spouse’s income’s gonna be a part of that.

If you have real estate, taxable profit, or if you have a taxable investment account that’s kicking off a lot of income unnecessarily, those are all things we wanna keep, keep an eye on. But we wanna take inventory and project out for the year. What are the different types of income that we are expecting, and how are those incomes going to be taxed?

Because capital gains and investment income might show up differently than the rest of your, your working income, right? [00:03:00] So starting with an inventory of what types and how much income is going to end up on your tax return, project it out through the rest of the year. We wanna keep an eye on unusually or one-time, types of income.

Like you sold an investment, or you sold a practice, or, you sold a piece of real estate, something like that. We wanna know what to expect with even those one-time events too. And and, keep in mind a lot of this is directional. Unless you’re on a very fixed W2 wage, we- we’re not gonna necessarily project out the rest of the year’s income to the decimal.

i- it will very likely vary, but we wanna get there directionally and create as reasonable of an estimate as we can for what your income is gonna look like through the rest of the year. And what types.

And then as we go through the rest of the air, we update, we adjust. These projections are living, breathing documents, so to speak. So this is something we start out with as reasonable assumptions as we can. And then adjust and update as we go. for the practice owner, the only way this is possible [00:04:00] to do remotely accurately is for you to have current, clean, accurate financials, and preferably financials that are up to date each month, right?

there are a lot of practices out there still getting up to date on a quarterly basis. There’s a lag. most ideally, you have, you, you have clean financials that are up to date and accurate and formatted in a way that you are able to use these not only for decision-making in the practice, so they’re not just, it’s not just an alphabetized list of expenses but also so that you can use it to inform your tax planning for the rest of the year.

So that’s question number one is what is your income likely to be through the rest of the year?

Question 2: Are You Paying Enough in Tax Payments Through the Year?

Evon: Now, question number two is, are you paying enough as you go? And this is really about tax withholdings or tax payments. once we project out sort of our base case from a tax projection standpoint, one of the first things we wanna look at is are we withholding enough?

Are we paying enough through the year to meet our expected tax liability come April? And one of [00:05:00] the biggest frustrations that I see with clients and just other optometrists are that there is a big surprise on the amount of taxes that are due in April. that, that is consistently the most frustrating experience is that you have a big surprise, it’s more than you were expected, you’ve gotta come up with the cash last minute.

And so we want to, as early as possible, try to take a look at this and say, “Hey, are we paying enough? Are we on track here with our quarterly estimated tax payments?” And if you own a practice that’s taxed as an S corporation, with your, W-2 wages, or if you have a spouse that’s working, your spouse’s W-2 wages as well.

and there are a couple goals we can aim for here. One

of the recent podcast episodes I did are on, are on safe harbors to aim for, meaning you pay and withhold a certain amount at, at the end of the year, you can at least avoid under withholding penalties. So that’s goal number one is let’s avoid any additional penalties for not paying in enough through the year because the government wants you to [00:06:00] pay into the system throughout the year.

The second goal, is to try to get as close as possible to the tax due that we’re expecting in April, and that’s something that we can look at now in June or July and just refine as we go throughout the year. And, and in terms of timing here, the next quarterly estimated tax payment federally is September 15th.

And, and so a mid-year projection i- is something we can take a look to say, “Hey, are we making enough? Are we paying too much?” Maybe our taxable income’s expected to be lower than what we were expecting from last year. so keep that in mind for September 15th, and then, and then for state taxes, you wanna keep an eye on that too if you do have state income taxes to prepare for.

And in addition to that, in addition to just knowing that you are on track here, the second job of this question is to make sure that you actually have the cash to make those payments, meaning that as a part of our normal cashflow handling of the practice, we are either taking enough out of our [00:07:00] withdrawals or we are setting aside enough in distributions to cover those quarterly payments.

We’re doing a good job of set, of putting those dollars aside into a separate bank account and letting them sit there for those quarterly tax payments

And so at least we want to try to lower the surprise and the frustration of not being prepared for that tax due come next April.

Question 3: Am I Near a Phaseout Threshold for Deductions, Credits, or Extra Taxes?

Evon: Question number three: Am I near a threshold that changes things, right? And this is a really important part of this. And to lay the landscape of what I’m talking about here is that when you look at your tax return, there is a certain flow or formula for how your taxes are actually calculated.

It all starts with just your total combined income for all the different spots that you’re earning income, your wages, your practice profit, real estate profit, investment income, all that sort of listed out and combined together. then you subtract out certain expenses like your HSA contributions,depending on the type of business you own, half of [00:08:00] self-employment taxes, things like that.

of course, all of your business deductions, all of your pre-tax 401contributions, all of those are subtracted as well. And after those deductions, you’re left with something called adjusted gross income. That’s, it’s line 11 on your tax return. And then you subtract out your standard deduction or your itemized deductions.

you subtract out your qualified business income deduction if you’re a business owner or practice owner. And then after a few other things, you’re left with your taxable income, and that’s the number that’s actually used to calculate your taxes and to determine what tax rates you’re gonna be facing.

Of all those different things, two really important line items you want to keep a close eye on are the adjusted gross income, line 11, AGI, or the taxable income, because those two are gonna be used to figure out if you are phasing out of certain deductions or credits or phasing into additional taxes.

And the [00:09:00] AGI is probably the biggest one. Because your AGI is gonna determine, for the most part, i- is gonna determine whether you are eligible for most credits or deductions or ineligible for them, or even additional taxes.

What is “Modified” Adjusted Gross Income

Evon: And in this conversation you’re gonna hear me say modified adjusted gross income. I’m sorry, I have to use that term just for accuracy. What does that mean? What that means is that it’s your AGI number on line 11.

Adjusted gross income. With certain things added back to it, and different deductions or credits or different tax items have their own definition of what modified adjusted gross income is. I’m not gonna get into that for each thing. I just wanna let you know, uh, you’re gonna hear that term.

It, it’s a tax term. For most of you. You’re not gonna have those additional add-backs, so. Primarily, you’re just gonna be looking at that adjusted gross income number.

So when your income gets to certain thresholds, certain points, you start to phase out of important things or phase [00:10:00] into additional taxes.

Child Tax Credit Phaseouts for Optometrists

Evon: And so what are those? some really important key ones that I want you to keep an eye on or just keep in mind as you go through the rest of the year are, number one, the child tax credit. So if you have children under 17, that’s $2,200 per child this year. and that tax credit starts to phase out when you have, AGI of $200,000 if you’re single, or $400,000 if you’re married filing jointly.

And from there, it starts to phase out little by little. now I should say it’s technically a modified adjusted gross income, so child tax credit starts to phase out at 200 or $400,000 of adjusted gross income depending on how you’re filing your tax return.

Roth IRA Contribution Income Limits for Optometrists

Evon: your ability to make Roth IRA contributions starts to phase out once your, modified adjusted gross income gets to a certain level. That doesn’t necessarily impact your taxes this year, but it’s something to keep in mind.

And of course it’s possible you may be able to do the quote unquote backdoor method of Roth IRA [00:11:00] contributions where you are contributing first to a Traditional IRA and it’s not deductible. And then you’re converting those dollars over to the Roth IRA. Now you wanna be careful if you have any pre-tax Traditional IRA dollars, that’s, that’s a different discussion. For many of you, there is the way to get around that. It’s not the, it’s not the biggest deal. You’d want to be aware of that though, if you’ve already contributed directly into a Roth IRA and then find yourself ineligible

and if you’re filing taxes separately for student loan purposes, you’re probably gonna be ineligible just because of that.

State and Local Tax Deduction Increased Cap Phaseouts for Optometrists

Evon: The state and local tax deduction, so your state and local taxes, those are things you can deduct on your tax return as an itemized expense, as an itemized deduction. And you can only do that if your list of specific itemized deductions, like charitable contributions, donations to charity, state and local taxes, property taxes, things like that, if that list of deductions are higher than your standard deduction amount.

And so one of those deductions, as I [00:12:00] mentioned, is state and local taxes. And, up until recently, you have been limited on taking only up to $10,000 of state and local taxes as a deduction there. But recently, that has been expanded. There’s been a higher cap, up to $40,400 in 2026. But that higher cap starts to phase down once your modified adjusted gross income gets to about $505,000.

Once your modified AGI gets to $505,000 here in 2026, that extra cap, that higher cap starts to phase down until your income gets to $606,000. And then it doesn’t go away altogether. It just shrinks back to that $10,000 original floor.

And that range of income’s, really expensive because it shrinks 30 cents, 30% for every dollar of additional income within that threshold. So that range of income is really expensive to go [00:13:00] through.

Now, there is a way around this by paying your state taxes through, through your practice if it’s an S corporation or a partnership. We’ll talk about that a little bit later. But if you’re trying to take these as an individual deduction on your tax return here, that cap phases out.

ACA Health Insurance Premium Tax Credit Phaseouts for Optometrists

Evon: The,the ACA health insurance premium tax credits. What is that? This is a tax credit that helps to reduce your health insurance premiums, and, this is something that’s really important if you are, especially a practice owner in the early years of ownership where your income from a tax perspective may be lower than it might be i- in the future.

And you do phase out of this, and the way that it works from 2026 moving forward, unless Congress makes a change here, is that once your adjusted gross income gets to 400% of the poverty line amount for your family size, you’re no longer eligible for that tax credit.

So for example, if you are, for this year, for 2026, if you are a family size of five, that limit, that AGI limit, is [00:14:00] about $150,600, right? So once you get beyond that, it’s a hard cliff. You’re no longer eligible for that credit, and that’s a real tax planning cost. If you project that out, it’s something you don’t wanna lose sight of and your income’s gonna be close to those thresholds, you wanna keep a really close eye on that.

And, the way you file taxes matters here, too, For example, for student loan purposes, sometimes we’ll want to file taxes separately to exclude your spouse’s income from that loan calculation if you’re on an income-driven plan.

if you’re filing taxes separately, you’re no longer eligible for that premium tax credit, right? So that’s something you wanna keep an eye on, too, is how you’re filing taxes here.

Student Loan Income-Driven Repayment Calculations Are Driven by Optometrists’ Adjusted Gross Income (AGI)

Evon: And of course, for anyone that is on an income-driven plan, your loans are by default, as a starting point, driven by your adjusted gross income and your family size.

That- that’s how your payments are calculated every 12 months. That’s the default starting point. And your IDR payments, although they’re student loan payments, those are effectively a 10% or 15% tax on your income. So that’s an important aspect that you [00:15:00] wanna keep in mind when thinking about taxes, too.

Which I do think gets lost a lot or forgotten a lot of the time. So those are all things that are driven by your AGI.

What Tax Rates You Pay Depend on the Amount – and Type – of Optometrists’ Taxable Income

Evon: The other things that are more driven by your taxable income are, number one, your marginal tax rate, right?

So what is the actual tax rate you’re gonna pay on your income? And that’s determined by the amount of taxable income that you have. And there’s two types of that. One of it is called ordinary income, and that’s the tax rate that you’re probably most familiar with, that you hear most about, 22%, 24%, 32%, 35%, and so on.

so are we phasing into the next tax bracket for your last chunks of income? That’s something we wanna know. For example, if we are in the 24% bracket and we’re really close to getting into the 32% bracket for your last chunks of income, that’s an 8% jump, right? that’s pretty high. That’s something that we may want to try to avoid if possible.

So that’s something we wanna keep an eye on, but also we wanna look at investment income, specifically, long-term capital [00:16:00] gains or dividends because that type of income can have more favorable tax rates, 0%, 15%, or 20%. And so we wanna know, hey, is more of our investment income getting pushed into those higher brackets, or can we impact that one way or another?

So the tax rates that you are getting into are an important part of that, and also the different types of income that you have. They’re gonna have potentially different tax rates.

Qualified Business Income (QBI) Deduction for Optometry Practice Owners

Evon: And finally, and perhaps very importantly for practice owners, the QBI deduction, the Qualified Business Income deduction.

So this is a 20% deduction that you get if you own a pass-through type business entity, which is a sole proprietorship, S corporation, partnership. And, it’s essentially a 20% deduction on business profit or, quote-unquote, “qualified business income”. And, this is something that we were anticipating going away at the end of last year.

the One Big Beautiful Bill Act from last year made it permanent, [00:17:00] so this is something that we are gonna see as a part of our tax planning moving forward until Congress makes another change. And so that’s great. and in fact, the, the law e-expanded the phaseout ranges a little bit more, so it made it a little bit more favorable.

So the qualified business income deduction, the amount that you are eligible for is based on taxable income before the deduction. unlike most of the other things we’re planning around, most of the other things are gonna be based on adjusted gross income. That’s very often the most important number that’s gonna tell us whether you’re phasing into or out of something.

This particular deduction is based on your taxable income, so after all of those deductions, but before this QBI deduction is applied. And in 2026, the way that works is that, if your taxable income is $201,775 if you’re single, or $403,500 if you’re married [00:18:00] and filing jointly, if it’s under those amounts, then you get the full 20% deduction.

if your income goes above those amounts, then you start to phase out of it little by little up until you hit the upper thresholds. And for you in 2026, that’s $276,775 if you’re single, or $553,500 if you are married filing jointly. And if you go above and beyond those numbers you phase out, and the reason that is because you are, because optometry practice as well as financial planning firms, we are what the IRS calls specified service businesses.

And because of that, once our income gets above and beyond those points, we phase out of it altogether.

Now, if you have other types of business income, like from a different type of industry or perhaps rental real estate, commercial real estate income, those types of business incomes may have a different set of rules that preserves more of that deduction for them. [00:19:00] But at least for our service businesses, that’s the specific way the phase-out will work

something that’s also brand new is that there is a minimum $400 deduction, as long as you have at least $1,000 of qualifying business income. So there’s at least this minimum deduction you’re gonna get.

I have an older episode that dives a little bit more into the details and mechanics of it. I’ll throw a link to that in the show notes. It is older, right? So it’s, the numbers there are gonna be a bit outdated, but that’ll walk you through the mechanics of it.

If you are above these phase-out thresholds, and you have the ability to get back into them, that’s a really big tax planning opportunity. Or if you’re able to lower your income to get further into it and qualify for more of this deduction, these are golden opportunities here.

and you start to see situations where a lot of these things start to phase out together. for example, once your income gets high enough, you start to phase out of the QBI deduction and the higher state and local tax deduction and [00:20:00] the ch- the, the child tax credit. So you have these really important, really important items that lower your income taxes all start to phase out together.

And so for me, from a tax planning perspective, and as I talk with the tax professionals my clients work with, we want to keep a close eye on all these really important tax items to say, “Are we phasing out of something really important, and can we do things to bring you back into eligibility for more of that?”

So those are all things we want to keep an eye on. I haven’t touched on all of them. On everything we might think through, but those are some of the major ones that you’re going to keep in mind and talk to your professionals about

Question 4: What Tax Planning Levers Can Optometrists Still Pull?

Evon: which leads us to question number four, what levers do I still have to pull? And we have half a year left. We still have plenty of time to do something if it makes sense to do something, right? And this is where you really, want to talk with your own professionals. Talk with your financial planning team, talk with your tax professional.

and see what actions make the most sense for your unique situation. don’t listen to me, I’m just a guy on a podcast, right? I don’t know anything about you, [00:21:00] unless you’re a client. So talk with your professionals and say, “Hey, what, what should be done? What are the opportunities there based on these other questions we’ve gone through, and what can we still do about it?”

Now, what are some of the major levers or tactics, actions?

Two Biggest Tax Planning Levers for Optometry Practice Owners Tend to Be Retirement Plan Contributions and Depreciation In the Practice

Evon: the biggest lever for practice owners tends to be retirement plan design and contributions and depreciation within the business. those are the two biggest levers that you’re probably gonna have at your disposal.

number one, retirement plan contributions, it’s gonna be that 401(k) plan. If you’re still writing a simple IRA because you’re afraid of the costs of a 401(k) plan, you’re gonna outgrow that thing. You just simply are. And so the 401(k) plan is gonna allow you to not only put a higher amount as an employee, but to then start to use things like profit sharing when that makes sense to.

And you wanna make sure that 401(k) plan is designed to fit the needs of the practice, having the right, method of profit sharing, for example. So you wanna have a really good third-party [00:22:00] administrator for the 401(k) plan to help you through that. And I’ll throw a link in the show notes to, a recent episode I did with a TPA, with a plan administrator, that talks about some of those things.

But 401(k) plan is one of the biggest levers you have there. Of course, you can even go above and beyond that if cash flow is substantial and consistent, like a cash balance plan, for example. But, the 401(k) plan’s the easiest place to start. Depreciation in the practice, do you have planned investments for the practice?

And I wanna emphasize planned. I would not suggest buying a bunch of equipment. Don’t buy an OCT just for the tax deduction. you’re spending a full dollar in order to save, 30 cents or so, right? That just doesn’t make sense. Invest in the practice because there’s a return on that investment, because it increases profitability and income of the practice or adds efficiencies.

but don’t do it just from a tax planning perspective. But if you are investing, then we can decide how to handle that from a [00:23:00] depreciation perspective. So for example, if you’re buying equipment at the practice, does it make sense to f- use Section 179 and fully depreciate that in the year you buy it?

Or does it make s- more sense to depreciate that over the five or seven-year schedule that you normally would? And It doesn’t always make sense to use Section 179 and fully depreciate that in the year you buy it. There are plenty of times where the biggest bang on the buck is instead to spread it out or the, over the normal schedule and take that deduction over five or seven years.

and the reason is because you may be able to deduct that at a higher tax rate each year by spreading it out rather than depreciating it, it all at once. But those are things you want to, project and talk with your professional team about.

Pass Through Entity Tax Credits May Help to Pay State Taxes Through the Practice and Get Around State and Local Tax Deduction Caps for Optometry Practice Owners

Evon: Something else we mentioned are making state tax payments through the practice. That’s something called pass-through entity tax payments or a tax credit. And, the way that works is if you have an S corporation or a [00:24:00] partnership, your practice may elect to make state tax payments on behalf of the owners, and that ends up being a federal tax deduction because it’s a deduction on the profit and loss.

And then on your individual state tax return, you get some form of a tax credit to offset that, so you’re not necessarily paying those same state taxes twice. And so that’s something you wanna talk to your tax professional about to see does it make sense for your specific situation

Evon: for example, you may be able to just take it on your individual tax return a- as an itemized expense. but, but for those practices where it does make sense, that, that can help you get around those 10 to $40,000 caps that we talked about earlier.

Health Savings Account Contributions for Optometrists That Have HSA-Eligible Health Insurance Plans

Evon: HSA contributions, if you have a, an HSA-eligible health insurance plan, which are, high- certain high deductible plans or all bronze plans, that are, that you buy on the exchange, those… If you have one of those plans, then you can make an HSA contribution, which is,which helps to lower your adjusted gross income here.

Donations to charity [00:25:00] or using donor-advised funds, those are potentially ways to do that.

Real Estate Tax and Depreciation Planning for Optometrists

Evon: there are some real estate depreciation planning options, too, if you’re a real estate investor, es- especially if you’re using short-term rentals, there are some things there, too.

But those are all just broad lists of examples that you should think about. but in reality, again, talk to your professional team to say, “Hey, where are we projected to be? What are the l- arrows in the quiver that we can still fire away and in- and impact that tax result most favorably?” And some of these things have a hard 12/31 deadline to do by the end of the tax year.

Other of these things, like 401(k) contributions or, or cost segregation studies for real- for investment real estate, those things can actually be done by the tax filing deadline of the entity, right? So you may have a little bit more time on those things, and sometimes including extensions.

you might have some time there to, to work on some of those things. but you wanna think through what other levers you still have based on your unique circumstances and your unique needs, and [00:26:00] what timeline do you have to do to actually pull those levers? Is it the end of the year? Is it by your tax filing deadline?

Those are things you wanna know

And particularly when you are in those phase-out thresholds for all those things that we talked about above, because, good tax planning when you’re in those phase-out thresholds, deductions or defer- or tax deferrals can have a much larger impact than just your marginal tax rate, than just the 32% tax bracket you might be in, the especially fun golden opportunities come when you are near or within those thresholds that we talked about, where you’re starting to phase out of certain things.

good tax planning with,with deductions or tax deferral can play a huge part and make a pretty big impact when you’re in those thresholds

Conclusions and Final Thoughts – Good Tax Planning Starts Early and Proactively

Evon: so just to wrap up here, what are the four questions you want to start to think for yourself and talk with your professional team about are, where will my income land projected out through the rest of the year?

What types of income do you have? Number two, [00:27:00] am I paying enough as you go? Is your withholdings adequate for what we’re projecting? Number three, am I near a threshold for anything important? And number four, what levers do I still have to pull? And should you pull them? Maybe not. maybe the best approach is simply to adjust your withholdings and enjoy your profit, right? Maybe you don’t need to do anything out of the ordinary. Maybe it’s just reviewing your taxable investment account to make sure it’s invested tax efficiently rather than really expensive active funds that are kicking off a lot of income.

it doesn’t necessarily need to be overly complicated, but you do wanna know the opportunities that are available and have plenty of time to do that. so talk with your professional team. Don’t take my word for it. see what makes the most sense for your situation. And if you wanna work with someone who is deep into this, who has a really proactive approach with optometrists, with practice owners, reach out.

I’d love to talk about what’s on your mind and share how we help optometrists navigate those same questions all over the country. And if you need a great tax professional, reach out. I’d be happy to give you [00:28:00] recommendations with that as well. So

Really appreciate your time. Happy tax planning. I will throw links to all of the resources and episodes that we talked about, into the show notes, which you can find at our Education hub on my website, www.optometrywealth.com.

you’ll find a link to schedule a time if you’re interested, or you can send me an email. But we will catch you on the next episode. In the meantime, take care