Author’s note: This blog shares my take on a framework I learned from Adam Cmejla, CFP®, in a recording of the 20/20 Money podcast. I want to give him credit for the idea.

It’s no surprise that IDOC Books & Benchmarks, a service that prepares optometry financial statements for tax purposes, gets its share of tax questions. We’ll always point clients to their CPA for a final answer, but we can help optometrists understand which questions to ask and what the likely answers might be.

Our approach to accounting for practice revenues and expenses is intentionally straightforward. First and foremost, it ensures the optometry benchmarks we generate are as consistent as possible. Inflating expenses to reduce taxable income would also skew benchmark profits, and of course, we avoid participating in any questionable tax practices.

Calculating Your Real Tax Savings

No one likes paying taxes. But when you inflate your expenses, usually by running personal expenses through the practice, you don’t get a dollar-for-dollar reduction in your tax bill. Instead, you reduce your taxes by your marginal tax rate on that extra “saved” profit.

For example, let’s say you file jointly with a spouse and have a taxable income of $300,000, near the top of the 24% tax bracket, which spans $206,700 to $394,600. Within this bracket, any $1.00 change in your total income results in a $0.24 change in the taxes you owe.

If you “pad” your expenses by $50,000 each year, you save about $10,800 annually in taxes. That’s a nice couple’s vacation, but it is hardly going to fund college tuition or buy you a new car.

The Hidden Risks of Aggressive Tax Planning

Aggressive tax strategies are not cost-free. The first and most obvious cost is the risk of triggering an IRS audit. As AI continues to roll out in the accounting and tax space, it will become easier for the IRS to identify businesses whose tax returns are out of step with most of their peers.

Our clients who have been audited often tell us the phrase “the process is the punishment” absolutely applies to the IRS. Using our earlier example, is saving roughly $10,000 per year worth the risk of having the IRS scrutinize every detail of your practice’s financials?

How Tax Decisions Impact Your Practice Valuation

There is a second, less obvious risk, your practice’s valuation when it comes time to sell. In valuation theory, the most trustworthy financial data comes from your tax return, because it carries penalties for misrepresentation.

Remember when we reduced profitability by $50,000 to save $10,800 in taxes? The hidden cost shows up in your optometry practice’s valuation. Business values are typically calculated as multiples of Earnings Before Interest, Tax, Depreciation, and Amortization, or EBITDA.

In private practice optometry, sales between private ODs typically range from 3x to 5x EBITDA. If your practice generates $200,000 in EBITDA, after paying all optometrists a fair wage, that implies a value of roughly $600,000 to $1,000,000.

Private equity transactions, as of this writing in 2025, often command even higher prices, typically between 5x and 7x EBITDA.

This is where padding expenses to reduce taxes can come back to bite you. That $50,000 reduction in profits used to save $10,800 in taxes does not just cost you $50,000. It can reduce your practice’s value by $150,000 at a 3x multiple, or up to $350,000 at a 7x multiple when you sell.

Simplifying Financial Statements for Better Insight

We are not against good tax planning or taking legitimate deductions. In fact, we are proud to be an important part of our clients’ tax planning teams. We make CPAs’ lives easier by producing clear, timely financial statements. We also give CFPs clean visibility into business income, so they can recommend tax-efficient savings strategies and think through income timing.

In our experience, the most effective financial statements clearly and accurately reflect a practice’s true revenue, expenses, and profitability. Anything else introduces a double-sided risk, greater audit exposure today, and a lower practice value tomorrow.

If you want confidence that your financials are accurate, timely, and actually make sense, IDOC Books & Benchmarks can help. Our financial statements simplify tax planning and support better decision-making for independent optometry practice owners.