Inside: A comprehensive checklist of pharmacy tax deductions in 2022.
Tax day is just around the corner. To reduce your tax bill and make this April less painful, make sure you’re maximizing all possible deductions for your pharmacy.
Learn which deductions are available to your pharmacy, including some that have changed this year and some you might have overlooked.
Pharmacy tax deductions to know for 2022
These deductions may have changed since the last time you claimed them.
1. Business use of car
If you used your personal car for business reasons and tracked your mileage, you can use that mileage as a tax deduction. However, the mileage rate decreased in 2021, from 57.5 cents per mile to 56 cents per mile.
2. Business interest
When you take out a loan or a line of credit for your pharmacy, the interest you pay on that debt is tax deductible. The interest is 100 percent deductible, but it’s limited to a certain portion of your taxable income. In previous years, you could deduct interest up to 50 percent of your taxable income. However, for the 2021 tax year, you can only deduct up to 30 percent of your taxable income.
3. Bonus depreciation
Depreciation is a typical tax deduction for small businesses, and with bonus depreciation, businesses can deduct a large percentage of a capital asset purchase immediately, rather than over time.
The Tax Cuts and Jobs Act of 2017 doubled the amount of bonus depreciation a business could deduct, from 50 percent to 100 percent. This depreciation must be taken the first year an asset is in service, and the rule expires at the end of 2022.
Important pharmacy tax deductions
Make sure you’re making the most of these common business deductions.
4. Employee salaries and benefits
If you have one or more employees, you can deduct the cost of their salaries, as well as benefits like vacation pay. This also includes any commissions or bonuses you’ve paid out. This is 100 percent deductible.
This deduction does not cover the salaries of sole proprietors, partners in the business, or LLC members. If deductions are taken for salaries of personal acquaintances or investors, the IRS may scrutinize the deductions.
5. Contractors
If you brought in a freelancer or contract worker, you can deduct their wages. This is 100 percent deductible and treated as a business expense.
If you pay a contractor more than $600, you’ll also have to send them a Form 1099-NEC so they can do their own taxes.
6. Utilities
Any utility bills you pay to keep your pharmacy running are 100 percent deductible. This includes items like:
- Phone
- Internet
- Water
- Electricity
- Trash
7. Rent
The cost of rent for any property you use for pharmacy purposes can be deducted 100 percent. This doesn’t just include your pharmacy building, but can also include things like rent for a parking lot or rent of a storage space.
An exception to this rule is if you will ever receive a title to or equity in the property you are renting. Then, the expense is not deductible.
8. Rent on equipment
The rental payments for leased equipment in your pharmacy can be deducted from your taxes. So if you are leasing a pharmacy robot or computers, you can deduct those payments.
However, if you are leasing equipment with the intention to buy the equipment at the end of the lease, then the rental payments are not considered tax deductible.
9. Advertising and promotion
Any marketing efforts you made to attract and retain patients can be completely deducted. This includes the cost of producing print materials, advertising fees, and influencer marketing.
10. Travel expenses
If you go to a pharmacy conference, leave town for a meeting, or travel for any other business purpose, you deduct those expenses.
Eligible travel expenses include:
- Plane, train, or bus tickets
- Cab or rideshare fares
- Parking and tolls
- Hotels and other lodging
However, the majority of your trip must be business-related. If you take a 10 day trip to Hawaii and take one business meeting, that is considered a vacation rather than a business trip.
11. Insurance
As a pharmacy, you carry many different forms of insurance. Most of those premiums are 100 percent tax deductible.
While the vast majority of insurance premiums qualify — like general liability, workers’ comp, cyber liability, professional liability, and more — if you have an oversized policy that is not in line with your pharmacy’s needs, the IRS may not approve of the deduction.
12. Office supplies
Any supplies you need to keep your pharmacy up and running can be deducted. These things might feel inconsequential as individual purchases, but keep track of them, because they add up. They include items like:
- Pens, pencils, and paper
- Cleaning supplies
- Kitchen supplies
- Printer ink
- Stamps and postage
This category also includes software subscriptions.
As a rule of thumb, if you don’t keep inventory of these items, don’t record when they are used, and the deductions don’t distort your income, you can deduct them as office supplies.
One caveat is that if you buy supplies that will last you a long time — like if you buy five thousand ballpoint pens — you cannot deduct them, because you didn’t use them all during the tax year.
Overlooked pharmacy tax deductions
Don’t forget these commonly overlooked deductions when doing your 2022 taxes.
13. Bad debt
Sometimes you make a sale on credit, and it never gets paid. If you have money owed to you that you’re sure will never be paid back, you can deduct that bad debt from your taxable income.
How much you can deduct depends on whether the debt is “fully worthless” or “partially worthless,” which is determined by how likely the amount will be paid back. If you have bad debts, it’s important to talk with a tax professional to make sure you’re claiming it properly.
14. Depreciation
The depreciation of your capital assets can be written off as a tax deduction for their entire useful life. To get a depreciation deduction, an asset must be used for more than one year, and it includes things like robotics and large pharmacy fixtures.
You can calculate depreciation using several methods, including:
- Straight-line depreciation
- Declining balance depreciation
- Sum-of-years’ digits depreciation
- Units of production depreciation
15. Retirement contributions
If you have a 401(k) plan for your employees, you may be eligible for several types of deductions.
The Startup Cost Tax Credit rewards small businesses by allowing them to deduct costs associated with setting up a 401(k) plan. You can also deduct your matching contributions and claim a tax credit for automatically enrolling eligible employees into your plan.
16. Education
Costs related to educating yourself or your employees can be deducted. This includes costs related to continuing education, getting professional licenses, or even subscriptions to industry publications.
You can’t deduct just any educational expenses, however. It must be education that relates to your pharmacy’s business.
17. Business meals
When you go out for a business lunch, you can deduct 50 percent of your food and beverage purposes. Business meals must be an ordinary and necessary part of doing business. You can also deduct 50 percent of the cost of food if you buy a meal for your employees (and 100 percent of the cost of meals if it’s for an office party).
18. Moving expenses
If you changed locations in 2021, you can deduct costs associated with your move. This includes the cost of relocating your inventory and machinery.
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