Chiropractors frequently ask CPAs for a bullet-point list that spells out legitimate deductions explicitly.

But Section 162 of the IRS tax code simply states that you can deduct all "ordinary and necessary" business expenses. For most Chiropractors, this means they should be deducting far more expenses than they currently are. Deduct anything and everything connected with your business, while making sure you can build the case to support the connection.

Many chiropractors are wary of aggressive approaches to tax strategizing because they fear the IRS. But the right strategist can steer you clear of red flags while also helping you capitalize on legal, safe, and legitimate tax breaks.

It's also critical that your accounting books are done to effectively facilitate such a proactive approach. It's impossible to do effective tax planning when your accounting is sloppy or delayed. The IRS has recently started asking audited taxpayers to provide a detailed listing of their annual accounting transactions. They're looking for misclassified transactions and year-end adjustments inconsistent with prior transaction classifications.

Accounting records should also include legal documents, corporate minutes, and agreements that support your tax strategies.

Incorporate to Reduce Your Rate

I'm shocked by how many Chiropractors operate as sole proprietors, which is the worst arrangement possible for taxes and liability exposure.

Incorporating provides the following critical benefits, among others:

• Protect your personal assets. Both corporations and LLCs allow you to separate and protect your personal assets and limit your liability for debts and legal obligations.
• Deductible expenses. Both corporations and LLCs may deduct normal business expenses, like salaries, before allocating income to owners.
• Tax flexibility. Structuring your entity correctly can help you avoid double taxation of corporate profits and dividends.
• Build a sellable business. Corporations and LLCs continue to exist, even if ownership or management changes. Sole proprietorships and partnerships end if an owner dies or leaves the business. This means incorporating allows you to sell your business for additional retirement income, rather than just closing your doors and walking away.

A competent attorney, in coordination with your CPA, can help you choose and properly structure the right entity.

Withdraw Business Income Strategically

How you withdraw business income can have a significant impact on your taxes. Withdrawals can come in the form of salary or dividends, and which one you choose depends on your legal entity.

Salary is your total pay package, and includes such things as bonuses, deferred payments, and fringe benefits. S corporation owners may reduce their tax burden by keeping their salary compensation as low as possible and withdrawing cash via dividends instead. Salary is taxed at a higher rate than dividend income because it's subject to employment taxes.

Dividends are distributions of company profits only available to corporate shareholders. How these payouts are treated depends on the type of corporation. S corporation owners have to pay the same tax on profits whether or not they withdraw the money for income, so it may be advantageous for them to maximize dividends.

Again, consult with a competent and strategic CPA to get further details for your unique situation.

Use Cost Segregation to Benefit from Depreciation

If, like many Chiropractors, you own your building, "cost segregation" can make a drastic difference in deductions due to depreciation.

This effective but under-utilized accounting technique shortens the depreciation period of your assets for taxation purposes, which reduces your current income tax burden. A cost segregation study, performed by an engineering firm, identifies all construction-related costs that can be depreciated over a shorter tax life (typically 5, 7 and 15 years) than the building (39 years for non-residential real property). This results in accelerated depreciation deductions, a reduced tax liability, and increased cash flow.

If your accountant is unfamiliar with cost segregation, you should find one who is.

Get Deductions by Investing in Your Business

Have you purchased any new equipment for your business in the past year? Or perhaps you haven't because you couldn't quite justify the expense?

Section 179 of the IRS tax code offers benefits for both scenarios. It allows you to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year. The full purchase (or lease) price of qualifying equipment can be deducted from your gross income. It's the government's way of incentivizing businesses to invest in themselves.

Conclusion

You work hard for your money, and you deserve to keep as much of it as possible. Yes, you want to pay your fair share. But paying more than that is just bad accounting.

Put your taxes in their proper context and never let the tax tail wag the dog of productivity. And make sure you have the right tax strategist to safely and legally reduce your tax burden to bare minimum.

Garrett Gunderson is a financial advocate to chiropractors and the author of the best-selling book Killing Sacred Cows: Overcoming the Financial Myths that are Destroying Your Prosperity. Get a free hardcover copy at www.freebookforchiros.com or by calling (877) 389-6547.

Brett K. Sellers, CPA is a Tax Strategist to chiropractors and a partner with the firm of Stewart, Archibald and Barney, LLP. He can be contacted at (702) 579-7000 and .