The Annual New Optometry Practice Review Checklist
A practical tax and business review checklist for new optometry practices, covering deductions, payroll, equipment, and compliance with 2026 figures.
Running a new optometry practice means juggling patient care with the business side, and taxes are a big part of that. An annual review helps you catch deductions, fix compliance issues, and plan for next year. This checklist walks you through the key areas to review, with concrete steps and realistic 2026 numbers.
1. Review Your Business Structure and Tax Obligations
Your practice’s legal structure (sole proprietorship, LLC, S-corp, etc.) determines how you pay taxes. For 2026, the federal corporate tax rate is 21%, but most small practices are pass-through entities, meaning profits flow to your personal return. If you’re an S-corp, you must pay yourself a reasonable salary (often $80,000-$120,000 for optometrists) and file Form 1120-S. Check that you’ve made estimated quarterly payments: the IRS requires them if you expect to owe more than $1,000. Penalties for underpayment can be 5% per month, so review your 2025 payments and adjust for 2026.
Action steps:
- Confirm your entity type and filing deadlines (March 15 for S-corps, April 15 for sole props).
- Calculate your 2026 estimated tax payments using Form 1040-ES; pay quarterly (April 15, June 15, Sept 15, Jan 15).
- If you’re an S-corp, review your salary to ensure it’s reasonable for your region.
2. Maximize Deductions for Equipment and Technology
New practices often buy expensive equipment: phoropters, OCT machines, and electronic health records (EHR) systems. Under Section 179, you can deduct up to $1,220,000 for 2026 (subject to phase-out), but you must place the equipment in service by Dec 31. Alternatively, bonus depreciation allows 100% deduction for qualified property, but it’s phasing down: 80% for 2026. For example, a $50,000 OCT scanner can be fully deducted under Section 179 if your taxable income is high enough. Also, don’t forget software subscriptions: EHR and practice management software (e.g., $200-$500/month) are deductible as business expenses.
Action steps:
- List all equipment purchases from 2025 and 2026; check if they qualify for Section 179 or bonus depreciation.
- For software, ensure you have invoices and use them for business only.
- If you plan to buy equipment in 2027, consider timing to maximize deductions.
3. Track Payroll and Contractor Payments
If you have staff (receptionists, technicians), you must withhold payroll taxes and file Form 941 quarterly. For 2026, the Social Security wage base is $176,100, and the Medicare rate is 1.45% (plus 0.9% for high earners). If you use independent contractors (e.g., a part-time optometrist), you must issue Form 1099-NEC for payments over $600. Misclassifying employees as contractors can trigger penalties (up to 100% of taxes owed). Review your worker classifications and ensure you’ve filed all forms by Jan 31.
Action steps:
- Run a payroll audit: verify all employees have W-4s and you’ve paid federal and state taxes.
- For contractors, collect W-9s and issue 1099s by Jan 31, 2027.
- Check state unemployment insurance rates, which vary (e.g., 2.7% in Texas, 6.2% in California).
4. Review Office Space and Utilities
Your office rent is deductible, but if you own the building, you can depreciate it over 39 years. For leased space, review your lease for any prepaid rent or improvements. Leasehold improvements (e.g., building exam lanes) can be depreciated over 15 years under MACRS. Also, don’t overlook utility deductions: electricity, internet, and phone. If you have a home office (even for administrative work), you can use the simplified method: $5 per square foot, up to 300 square feet, for a max deduction of $1,500.
Action steps:
- Gather your lease agreement and utility bills; categorize them as direct or indirect expenses.
- If you made improvements, calculate depreciation using IRS Form 4562.
- For home office, measure the space and apply the simplified method if it’s easier.
5. Manage Inventory and Supplies
Optometry practices carry frames, contact lenses, and medical supplies. You can deduct the cost of goods sold (COGS) if you track inventory. For 2026, the IRS allows the cash method if your average gross receipts are under $30 million, but most new practices use accrual. Review your inventory valuation method (FIFO or LIFO) and do a physical count. For example, if you have $20,000 in frames, you can deduct the cost when sold, not when purchased. Also, remember to write off obsolete or damaged inventory.
Action steps:
- Conduct a year-end inventory count and adjust your records.
- Choose a valuation method and stick with it; document changes.
- Write off any unsellable inventory and keep records for tax purposes.
6. Don’t Forget Professional Fees and Insurance
Legal, accounting, and consulting fees are deductible. For a new practice, you might spend $2,000-$5,000 on accounting and $1,000-$3,000 on legal advice. Also, professional liability insurance (malpractice) is deductible: expect $3,000-$8,000/year depending on state. Health insurance premiums for yourself and employees are deductible (if you’re self-employed, you can deduct them above the line). Review all insurance policies and premiums to ensure they’re business-related.
Action steps:
- Collect invoices for professional services and insurance premiums.
- Verify that all policies are in the practice’s name.
- For self-employed health insurance, deduct on Form 1040, not Schedule C.
7. Plan for Retirement and Health Savings
Retirement plans like SEP IRAs or 401(k)s can reduce taxable income. For 2026, SEP IRA contributions are up to 25% of compensation, max $69,000. A solo 401(k) allows employee contributions up to $23,500 (plus catch-up of $7,500 for over 50). Health Savings Accounts (HSAs) are also powerful: for 2026, the contribution limit is $4,300 for individuals and $8,550 for families, with a $1,000 catch-up. These contributions are tax-deductible and grow tax-free.
Action steps:
- Set up a retirement plan before Dec 31 to deduct contributions for 2026.
- If you have a high-deductible health plan, open an HSA and contribute up to the limit.
- Consult a financial advisor to choose the best plan for your cash flow.
8. Review State and Local Taxes
Don’t forget state income taxes, sales tax on retail items (frames, contacts), and property taxes on equipment. Sales tax rates vary: e.g., California 7.25%, Texas 6.25%, but local add-ons can push it higher. You must collect sales tax on retail sales unless you’re selling to other businesses. Also, some states have a franchise tax or gross receipts tax (e.g., Texas margin tax). Review your state’s requirements and file on time to avoid penalties.
Action steps:
- Check your state’s sales tax rate and ensure you’re charging correctly.
- File sales tax returns monthly or quarterly, depending on your volume.
- Pay property tax on equipment; you may need to file a business personal property return.
FAQ
Q: When should I do this annual review?
A: Ideally, in the fourth quarter (October-December) so you can make adjustments before year-end. For example, you can still buy equipment or contribute to retirement plans by Dec 31.
Q: What if I missed a deduction from last year?
A: You can file an amended return (Form 1040-X) within three years of the original filing date. For 2025 taxes, you have until April 15, 2029, to amend.
Q: Do I need to pay estimated taxes in my first year?
A: Yes, if you expect to owe more than $1,000. Use the annualized income method to avoid penalties if your income varies.
Q: Can I deduct the cost of my optometry license and continuing education?
A: Yes, license fees and CE courses are deductible as business expenses. Keep receipts and track them.
The Bottom Line
An annual review is not just about taxes; it’s about understanding your practice’s financial health. By following this checklist, you can reduce your tax bill, avoid penalties, and set up for growth. Start with the highest-impact items: equipment deductions, payroll compliance, and retirement contributions. If you’re unsure, hire a CPA who works with medical practices; the cost (often $1,500-$3,000) pays for itself. Set a recurring reminder for October each year, and you’ll stay ahead.