Understanding Changes in Digital Asset Reporting for Dental Practices

With the rise of cryptocurrencies and other digital assets, the IRS has been expanding its focus on ensuring proper tax compliance in this evolving space. Significant changes to digital asset reporting will affect businesses, including dental practices. These changes primarily center around reporting obligations and the expiration of safe harbor provisions. 

What is the Digital Asset Reporting Rule?

Digital asset reporting refers to the requirement that businesses and individuals disclose their holdings and transactions involving cryptocurrencies or other digital assets. This mandate was first introduced as part of the Infrastructure Investment and Jobs Act (IIJA) signed into law in 2021. The law requires brokers to report cryptocurrency transactions to the IRS and provide information to the account holder, similar to how traditional financial institutions report stock or bond sales.

The IRS expanded its definition of brokers to include entities facilitating cryptocurrency exchanges and transactions, meaning that dental practices may now have more stringent reporting obligations if they handle digital assets.

What Does the Expiration of the Safe Harbor Mean?

Since the IIJA passed, a transitional safe harbor has been in place to provide taxpayers some flexibility in adjusting to the new reporting rules. Under this safe harbor, taxpayers were not penalized for underreporting or failing to report certain digital assets if they made a good faith effort to comply.

However, this safe harbor expires on January 1, 2025. This means that starting in 2025, dental practices and other businesses that deal with digital assets will be fully accountable for meeting the reporting requirements. Failure to comply could lead to penalties, audits, or other tax-related consequences.

Key Changes and What to Expect 

Several changes in the IRS’s approach to digital asset reporting will take effect in 2025, which dental practice owners should be aware of:

  1. Broader Reporting Requirements: Businesses will need to report all cryptocurrency transactions to the IRS, including those made on behalf of patients or as part of payment for services. This also applies to indirect exchanges and sales through third-party platforms.
  2. New Reporting Forms: The IRS will require businesses to use new reporting forms, such as the Form 1099-DA, which will document transactions related to digital assets, similar to the traditional Form 1099-B for securities.
  3. Penalties for Non-Compliance: Once the safe harbor ends, failure to comply with the new digital asset reporting requirements can result in significant penalties. Businesses may face audits or fines for underreporting or failing to report cryptocurrency transactions.
  4. Clarification on Digital Asset Definitions: The IRS has expanded the definition of “digital assets” to include not only cryptocurrencies but also NFTs and other digital tokens. Practices that accept any form of these digital assets will need to ensure proper documentation and reporting.

What Dental Practices Should Do to Prepare

With the expiration of the safe harbor fast approaching, dental practices should take the following steps to ensure they remain compliant with IRS rules:

  • Review Existing Digital Asset Policies: Practices that accept cryptocurrency or other digital assets as payment should assess their current practices for recording and reporting these transactions.
  • Consult with E&A: Given the complexities surrounding digital asset taxation, consulting with tax professionals who understands the specific requirements for digital assets is crucial. 
  • Upgrade Financial Tracking Systems: If your practice deals with digital assets, make sure your accounting and payment systems are equipped to properly track these transactions for IRS reporting.
  • Educate Staff: Ensure that your practice managers and financial staff are up to speed on the new reporting obligations. Having clear processes for handling cryptocurrency payments and other digital assets will be critical for compliance in 2025 and beyond.

As the IRS continues to increase its focus on digital assets, it is vital for dental practices to stay proactive and compliant. With the expiration of the safe harbor, proper reporting is no longer optional, and penalties for failing to meet IRS standards can be significant. Now is the time to review your practice’s digital asset policies and ensure you are prepared for the changes that will come into effect in 2025.

For more detailed guidance, dental practice owners should reach out to us to help them navigate these updates and avoid costly mistakes.

Retirement Contribution Limits for 2025

The IRS recently released Notice 2024-80, detailing retirement plan contribution limit changes for 2025. These updates offer dental practice owners, administrators, and employees an opportunity to increase retirement savings. 

Increased 401(k) Contribution Limits

For 2025, the IRS raised annual contribution limits for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan:

  • Employee Contribution Limit: Increased from $23,000 in 2024 to $23,500 for 2025.
  • Catch-Up Contribution (Ages 50+): Remains at $7,500.
  • Secure 2.0 Catch-Up Contribution (Ages 60-63): $11,250 for employees nearing retirement.

Dental practice employees aged 50 and older can now contribute up to $31,000 to their retirement accounts, allowing them to grow their savings more robustly as they approach retirement.

IRA Contribution Limits Remain Steady

For those using traditional or Roth IRAs, the annual contribution limit remains unchanged at $7,000 in 2025, with a $1,000 catch-up for those 50 and older. Although there is no increase here, IRAs continue to be a valuable addition to retirement planning strategies, particularly for dentists and practice employees looking to diversify retirement savings.

Roth IRA Income Limits

The IRS also adjusted income thresholds for Roth IRA contributions, providing opportunities for higher-income earners to still participate, albeit with limits:

  • Single and Head of Household Filers: Phase-out range is $150,000 – $165,000.
  • Married Filing Jointly: Phase-out range is $236,000 – $246,000.

These limits mean that practice owners and employees within these income ranges may have reduced Roth IRA contribution options, while those exceeding these thresholds are ineligible.

SEP and SIMPLE IRA Limit Increases for 2025

For dental practice owners utilizing Simplified Employee Pension (SEP) IRAs or Savings Incentive Match Plan for Employees (SIMPLE) IRAs, there are new limits for 2025:

  • SEP IRAs: Increased to $70,000 from $69,000 in 2024.
  • SIMPLE IRAs: Employee contribution limit raised to $16,500, with the $3,500 catch-up remaining unchanged.

These adjustments make SEP and SIMPLE IRAs even more attractive for dental practices, particularly for smaller practices that want flexible and tax-efficient retirement options.

Higher Limits for Defined Benefit Plans

Defined benefit plans, typically more common in larger practices or for practice owners aiming for high retirement contributions, also saw an increase to $280,000 from $275,000 in 2024. They can provide substantial savings potential, enabling dental practice owners to make large contributions that help secure their retirement and enjoy tax advantages.

HSA Contribution Limits Updated

While not a retirement plan, Health Savings Accounts (HSAs) are an essential part of long-term financial planning, especially when considering future healthcare costs:

  • Individual Contribution Limit: Increased to $4,300.
  • Family Contribution Limit: Increased to $8,550.
  • Catch-Up Contribution (Ages 55+): Remains at $1,000.

HSAs can complement a retirement plan by covering qualified medical expenses in retirement, allowing practice owners and employees to plan more effectively for future healthcare needs.

Strategic Considerations for Dental Practice Owners

These retirement plan updates provide a prime opportunity for dental practices to enhance their employee benefits and retirement strategies. Here are a few ways to leverage these changes:

  1. Encourage Increased Contributions: Educate employees on the benefits of maximizing their retirement contributions, especially with the new limits in place.
  2. Evaluate Plan Offerings: If your practice doesn’t currently offer a retirement plan, consider setting up a SIMPLE or SEP IRA, which provides higher contribution limits and tax benefits.
  3. Take Advantage of Catch-Up Contributions: For those over 50, the ability to make catch-up contributions is a valuable tool to accelerate retirement savings.
  4. Consider Employer Contributions: Adding employer contributions or matching can enhance employee satisfaction and loyalty, helping retain valuable team members.

Planning for a Financially Secure Future

With the updated IRS retirement plan limits for 2025, dental practice owners and their employees have an opportunity to boost their savings and ensure a financially secure future. To make the most of these changes, reach out to us for individual planning. Proper planning can help you maximize tax benefits, increase retirement readiness, and support your team’s financial health.

If you have questions about how these changes could impact your practice’s retirement planning, reach out to us for guidance. We’re here to help you understand the new limits and implement strategies to make the most of them.