Tax consequences to early payment of dental practice loan?

Sun, Nov 23, 2014 at 12:35PM

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Dentaltown is the leading online community for dentists and dental professionals around the world.  We have included topical questions and answers from Dentaltown here for your review.

 

QUESTION: 

Is the tax benefit of having a practice loan worth not paying it down early?  In my mind I think paying it of early is better but so many call practice loans "good debt." 

 

ANSWER:

Debt for the sake of a non income producing activity is not a worth while endeavor.  However, if debt can bring you a solid return on your investment than it becomes part of the overall business plan.  When deciding how fast to repay the loan there are a handful of decisions that need to be made about how "best" to use that money.  Most of our dental clients are in the 33% tax bracket or above.  If this is true for you than you would want to make sure you maximize your qualified retirement accounts before you would repay the practice debt.  Also you may have other consumer debt that is not giving you any tax break, so it would make sense to pay that debt before the practice debt.  And so on, and so on.

Basically you are correct, however there is an order that you really should follow first to get there.  

Hope that helps...


Eric DeVriese, CPA
Trusted Business Advisor
We help Dentists build amazing practices

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