The Tax Cost of Treating Your Businesses Like They're Unrelated

We continue to see this pattern month after month with independent pharmacy owners. They have every element in place for a lower tax bill. The pharmacy entity. Sometimes a separate entity that owns the building the pharmacy operates out of, which pays rent to that entity. Sometimes a rental property on the side. Sometimes a spouse running a completely separate business. Each piece, on its own, is fine. Filed correctly, nothing flagged, nothing broken.

The problem is nobody is looking at all of it together.

We recently onboarded a pharmacy owner in this exact situation. A profitable pharmacy. A real estate holding tied to it. A retirement plan that hadn't been revisited in years. Every return had been filed properly. But each entity had been handled in isolation, as if they had nothing to do with each other.

Her effective tax rate was just under 34 percent.

We did a full review of her pharmacy, her real estate, and her retirement structure together instead of separately, and built one coordinated plan around all of it. Restructuring the entities so they worked with each other instead of independently. Applying a real estate strategy to the building instead of treating it as a passive asset sitting off to the side. That step alone unlocked losses that had been suspended for years, sitting unused because nothing had triggered them. Revisiting her retirement contributions now that the entity structure gave her more room to work with.

None of this was aggressive. None of it was a loophole. It was the same tax code available to her the whole time. It just required someone to treat her financial picture as one thing instead of four separate things that happened to share an owner.

Her effective tax rate moved from just under 34 percent to the low to mid 20s. That is not a typical result, her situation was more complex than most, but it shows what happens when someone actually looks at the whole picture instead of the piece in front of them.

What to Check in Your Own Situation

You don't need a complex ownership structure for this to apply to you. You just need more than one moving part.

Start with a simple list. Write down every entity you have an ownership stake in. The pharmacy. Any building or real estate tied to it. A rental property. A separate business your spouse runs. Then ask whether anyone, ever, has looked at that list as one financial picture, or whether each item on it gets filed on its own every year with no connection to the others.

Look at your entity structure next. If it was set up when you opened the pharmacy or bought the building and hasn't been reviewed since, that's worth a second look. Revenue changes. Ownership changes. What made sense five years ago may not be the right setup today.

If you own the building your pharmacy operates out of, ask what's actually being done with it beyond collecting rent. A building can be a passive asset sitting off to the side, or it can be part of a real estate strategy. Those are two very different outcomes from the same piece of real estate.

Check your retirement contributions against what your current structure actually allows. Owners often keep contributing at a level that made sense years ago without revisiting whether their structure now allows for more.

Last, ask if you have any suspended losses sitting on a return somewhere. Losses can go unused for years simply because nothing in the plan ever triggered them. Most owners have no idea if this applies to them because no one has gone looking.

None of these questions require a complicated answer. They just require someone to ask them.

We offer a free, confidential income tax review for pharmacy and healthcare owners. Sometimes the answer is that everything is coordinated well. Often it isn't.

Check out our article: Why Your Pharmacy's Entity Structure Deserves an Annual Checkup

If you have questions about this topic, speak with your CPA or accountant. And if you need guidance or a second opinion, you’re always welcome to contact us.