Questions Pharmacy Owners Should Ask Before Filing Their Tax Return

As an independent pharmacy owner, tax season is a critical time to ensure your financials are optimized for maximum tax savings and compliance. Before submitting your business entity return to the IRS, you should have a detailed conversation with your CPA. Asking the right questions can help you avoid costly mistakes, take advantage of tax-saving opportunities, and ensure your business structure aligns with your long-term goals. Consider asking your CPA the following questions before filing your business tax return:

1. Is My Current Business Structure the Most Tax-Efficient?

Your entity type—whether an S Corporation, C Corporation, Partnership, or Sole Proprietorship—has a direct impact on your tax liabilities. Some structures offer pass-through taxation, while others provide opportunities for reinvestment and tax deferral. Given recent tax law changes, your CPA should evaluate if your current structure is still the most beneficial for minimizing taxes and maximizing profitability.

2. Should I File on a Cash or Accrual Basis?

Pharmacy owners typically have the option to file taxes using either the cash or accrual method. The choice can significantly impact your taxable income:

• Cash Basis: Income and expenses are recorded when cash is received or paid. This can be beneficial for tax deferral if you delay collections or accelerate expenses before year-end.

• Accrual Basis: Income and expenses are recorded when earned or incurred, regardless of when cash is exchanged. This method provides a more accurate financial picture, which can be important for loan applications and business valuation.

  
  

  Your CPA can help determine which method is most advantageous based on your revenue cycle and business goals.

  
  

3. Should I Do a Physical Inventory Count?

Inventory valuation affects your taxable income, so performing a physical count is crucial. If your inventory is overstated, you could be paying unnecessary taxes on unsold products. Your CPA can help you determine if you should adjust your inventory valuation method, such as FIFO (First In, First Out) or LIFO (Last In, First Out), to optimize tax savings.

4. Am I Maximizing My Available Tax Deductions?

Pharmacy owners often overlook deductions that could significantly lower their tax bill. Ask your CPA about:

• Section 179 Deduction & Bonus Depreciation: Can I fully deduct my equipment purchases this year?

• Business Expenses: Am I capturing all allowable deductions for rent, payroll, marketing, and professional fees?

• Vehicle & Mileage Deductions: Should I deduct actual vehicle expenses or use the IRS standard mileage rate?

• Continuing Education & Licensing Fees: Am I writing off all professional development expenses?

  
  

5. Have I Taken Advantage of the R&D Tax Credit?

Many pharmacies don’t realize they may qualify for the Research & Development (R&D) Tax Credit if they have invested in improving pharmaceutical compounding processes, automation, or software integration. Your CPA can assess whether you meet the eligibility requirements and how to claim this credit. There are also many other credits available in addition to the R&D.

6. Am I Properly Handling Owner Compensation & Distributions?

If you operate as an S Corporation, how you pay yourself matters. A CPA should help determine:

• Whether your owner salary meets IRS “reasonable compensation” standards to avoid red flags.

• If distributions vs. wages should be adjusted to minimize payroll taxes.

• Whether a retirement plan contribution (e.g., SEP IRA, SIMPLE IRA, or 401(k)) could help reduce taxable income.

  
  

7. Have I Paid Enough in Estimated Taxes?

To avoid penalties, your CPA should review whether you’ve paid the appropriate estimated taxes throughout the year. Many pharmacy owners underestimate their tax obligations, leading to unexpected IRS bills. A CPA can help ensure you’re making accurate quarterly payments.

8. Am I Compliant with Payroll Tax and Sales Tax Regulations?

Pharmacies must collect and remit sales tax correctly for taxable vs. non-taxable items. Additionally, if you have employees, compliance with payroll tax withholding and reporting is essential to avoid IRS penalties. Your CPA should confirm that your records and filings are in order.

9. What Strategies Should I Implement Now for Next Year’s Tax Savings?

Tax planning shouldn’t be a last-minute effort. Your CPA should provide proactive tax strategies that help you minimize liabilities for the following year, such as:

• Adjusting year-end purchases or expenses to reduce taxable income.

• Evaluating whether hiring family members could provide tax benefits.

• Reviewing potential tax credits for hiring employees or implementing green initiatives.

  
  

Contact Us for Expert Tax Guidance

Rx Advisors specializes in helping independent pharmacy owners navigate complex tax issues while maximizing savings and ensuring compliance. If you have any questions about your tax return, want to implement proactive tax strategies, or want a free income tax review, contact us today to schedule a consultation.