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. Just want to give him credit for the idea!
It’s no surprise that Books & Benchmarks, a firm 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 won’t get a dollar-for-dollar reduction in your tax bill. Instead, you reduce your tax bill by the marginal tax rate on that extra “saved” profit.
For instance, let’s say you file your taxes jointly with a spouse and have a taxable income of $300,000 (near the top of the 24% tax bracket, which spans $206,700–$394,600). Within this bracket, any $1.00 change to your total income translates to a $0.24 change in the taxes you owe.
If you “pad” your expenses by $50,000 every year, you’re saving $10,800 a year in taxes. That’s a nice couple’s vacation, but it’s hardly going to fund college tuition or buy you a new car.
The hidden risks of aggressive tax planning
But “aggressive” tax strategies aren’t cost-free. The first and most obvious cost is the risk of triggering an IRS audit. As AI gets rolled out more in the accounting and tax space, it will be 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 tell us the phrase “the process is the punishment” absolutely holds true with the IRS. Using our earlier example, is $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’s a second risk, though, and that’s to your business’s valuation when you go to sell. In valuation theory, the most trustworthy financial data comes from your tax return (because that report comes with penalties for misrepresentations).
Remember when we reduced profitability by $50,000 to save $10,800? The hidden cost shows up in your optometry practice’s valuation. Simply put, business valuations are calculated as multiples of Earnings Before Interest, Tax, Depreciation & Amortization (EBITDA).
In private practice optometry, sales between private ODs tend to go from 3 times EBITDA to 5 times EBITDA. So, if your practice has $200,000 in EBITDA (after paying all the ODs a fair wage), you could calculate an expected value of $600,000 to $1,000,000.
Private equity (as of this writing in 2025) pays even higher prices between 5x and 7x EBITDA.
This is where padding expenses to reduce taxes can really come back to bite you. That $50,000 in reduced profits used to save $10,800 in taxes doesn’t just cost you $50,000. It can decrease your practice’s value by $150,000 at a 3× multiple, or up to $350,000 at a 7× multiple when you sell.
Simplifying financial statements for accurate practice insight
We’re not against good tax planning or taking deductions. We’re proud to be an important part of our clients’ tax planning. We make CPAs’ lives easy by producing clear and on-time financial statements. We also provide CFPs with clear visibility into their clients’ business income, allowing them to recommend tax-efficient savings strategies and think through the timing of income.
From our experience, the most effective financial statements clearly and accurately reflect your practice’s true revenue, expenses, and profitability. Anything else introduces a double-sided risk of IRS audits and a lower practice value when you sell.
If you want to know your financials are accurate and on time (and have them make sense to you!), give Books & Benchmarks a call. Our financial statements simplify tax planning and help owners make great decisions about managing their practices.