Master The Margin Monthly | Smart SALT Strategies
Tax Tips for State & Local Compliance, Inventory and Your Valuations, Telehealth Accounting, R&D Expenses and Credits
Doing some spring cleaning? Dust off more than just the shelves and add SALT Compliance to your spring cleaning.
What do we mean by SALT?
We’re talking about State and Local Taxes.
That’s why in this month’s edition of Master The Margin, we’re bringing you four practical tips to help you make the most of your SALT planning this year!
But wait…there’s more!
We’re also bringing you tips to maximize the valuation of your pharmacy with inventory, insights into the R&D Tax Credit and Expenses, and some accounting for the pharmacy owners looking at expanding into Telehealth.
With that being said, let’s dive into our first topic.
Trending This Week: Arkansas bill would prevent Pharmacy Benefit Managers from owning pharmacies
You may have seen this story circulating around the internet, but in the event you did not, here’s the inside scoop:
HB1150, a bill out of Arkansas making its way through the Arkansas legislature, would prevent PBMs from owning pharmacies.
It’s a move that seeks to end anti-competitive PBM practices, restoring fairness, and putting patients first.
This bill has passed the Arkansas Senate and is now headed to the Governor’s desk.
So, what does this mean for the independent pharmacy industry as whole?
For starters, this could serve as a model for other states.
Many state legislatures are under pressure from independent pharmacy associations and local business coalitions to rein in PBM power.
If HB1150 proves successful in Arkansas, legally sound and effective, it could set a powerful precedent.
Several states like West Virginia, Ohio, and Georgia have also launched PBM reform initiatives. HB1150 takes it a step further by attacking ownership structure, not just operational practices.
Secondly, this offers a boost of hope for Independent Pharmacies.
For independent pharmacies, this bill represents a potential rebalancing of power in the pharmaceutical supply chain as well as a chance to retain more prescriptions that might otherwise be diverted to PBM-owned outlets.
If signed into law, it could ease some of the economic pressure and uncertainty that independents face when dealing with PBMs.
While this is promising, independent pharmacies should still view this as one win in a larger battle.
PBMs are powerful entities with deep pockets and national reach. Any state-level reform will likely face legal challenges and lobbying pushback.
Additionally, without federal-level alignment, PBMs may simply shift strategies to continue influencing pharmacy economics in other ways.
Interested in reading more about this bill? Click here.
Question of the Week: R&D Tax Credits For The Innovative Pharmacy
Recently, as more and more pharmacy owners explore telehealth solutions, we’ve been getting asked “Are there any tax implications I need to be aware of when exploring telehealth in my pharmacy?”
Short answer: Yes
Here’s a break down:
If you're diving into new products, services, or processes, you might be eligible for the Research & Development (R&D) Tax Credit.
This is a federal (and in many cases, state-level) tax incentive designed to encourage businesses to invest in innovation and technological advancement within the U.S.
It rewards companies that spend time and resources developing or improving products, processes, software, or techniques.
But what activities qualify?
You might qualify if your pharmacy is:
Designing or developing new products
Improving existing products or processes
Creating custom software or systems
Conducting trial-and-error testing or prototyping
Experimenting with new materials or formulas
Exploring technical uncertainty (i.e., how to make something work)
Whether you're experimenting with a new service model, refining how something works, or simply figuring out if you should pursue a new idea, those exploratory efforts can count.
Even activities like integrating a new telehealth workflow or creating a new internal system for patient care documentation can qualify if there’s technical problem-solving involved.
But here’s the catch: documentation is everything.
Without detailed records of your activities, expenses, and time allocation, the credit won’t stand up under scrutiny.
For the credit to be worthwhile, you typically need at least $150,000 in qualified R&D expenses, especially if the work is being done by a single individual, like the pharmacy owner.
If you're paying yourself $200,000 and you're the only one doing R&D in the pharmacy, you need to be able to allocate most of your time to R&D… at least $150,000 worth to really move the needle.
Industry Leader of the Month: Dr. Amina Abubakar, PharmD
This month, we’re honored to announce our industry leader of the month...Dr. Amina Abubakar, PharmD!
Dr. Amina Abubakar, PharmD is the CEO and Founder of Avant Pharmacy & Wellness Center in Charlotte, NC and is an absolute legend in independent pharmacy.
One of the big initiatives she’s undertaking in her pharmacy is collaborative clinical care through partnerships with local providers and health systems!
We just had her on our Bottom Line Pharmacy Podcast where we break down the economics, how to implement this in your pharmacy, and more!
Click below to give that episode a listen and be sure to check out Amina Abubakar and her pharmacy.
Understanding Inventory in Pharmacy Buy-Sell Transactions
Inventory plays a pivotal role in pharmacy transactions, affecting both buyers and sellers significantly.
For an independent pharmacy, properly managing and valuing inventory is crucial to a smooth and successful closing process.
Types of Inventory to Consider
In most pharmacy settings, inventory is categorized into several types:
Script Inventory: Medications that require a prescription.
OTC Inventory: Consumer products available without a prescription.
Back Room Inventory: Gifts, greeting cards, seasonal merchandise, and more.
Each of these categories presents its own unique challenges and considerations during a sale.
Timing and Process of Inventory Counts
Inventory is typically counted the night before the closing date.
This process is collaborative and often involves both the buyer and seller (or their representatives) working together to ensure accuracy and agreement.
In some cases, a third-party inventory specialist like InventoryIQ may be brought in to facilitate the count.
However, it’s more common for the buyer and seller to conduct the inventory themselves, especially in smaller transactions.
Managing Script Inventory
For buyers, understanding the dating of prescription items is critical.
For example: Products that are near expiration (typically defined as expiring within two weeks) are generally not desirable.
Now, if you’re a buyer, you must carefully inspect shelf stock to avoid inheriting unusable or soon-to-be-expired inventory.
Sellers, on the other hand, should proactively manage their script inventory by returning unsold or slow-moving medications to wholesalers well in advance of the sale. Though credits from wholesalers can take weeks to reflect, doing so helps clean up the inventory and maximizes potential cash returns before closing.
Valuation Nuances
Valuing script inventory can get complicated. Many factors influence the valuation, such as:
Perpetual inventory systems tied to script management software
Variable pricing from multiple wholesalers
Product storage conditions (e.g., refrigerated vs. shelf-stable)
Pricing accuracy should be verified by both parties before and during the final inventory count.
Discrepancies in cost data due to purchases from multiple wholesalers can distort value, so coordination and transparency are key.
OTC Inventory: A Mixed Bag
The significance of OTC inventory varies dramatically from pharmacy to pharmacy.
A common issue with OTC stock is low turnover.
In most cases, items that turn less than once a year are considered poor performers and should be evaluated carefully as buyers are often hesitant to pay full price for that inventory and negotiations around this are not just common, they're expected.
The Forgotten Back Room
Seasonal and miscellaneous items stored in the back room (Easter decorations, unsold holiday gifts, etc.) often become sticking points in negotiations.
If backroom items haven’t moved after being put on clearance or display, they may have little to no resale value.
One important aspect to consider with backroom inventory: Value in retail inventory is highly dependent on realistic market demand, not just shelf or storage presence.
Final Thoughts: Coordination Is Critical
Whether it's verifying expiration dates, negotiating values, or simply organizing a comprehensive count, inventory is a key component in pharmacy sales transactions.
Buyers and sellers must engage openly, work collaboratively, and prepare thoroughly to ensure fairness and clarity on both sides of the table.
Smart SALT Strategies: Tax Tips for State & Local Compliance
Navigating State and Local Taxes (SALT) can be complex, but with the right approach, it’s possible to reduce your liability while staying fully compliant.
Ready to sharpen your SALT game? Here are four key tips to guide your planning this tax year.
Tip #1: Maximize Depreciation Deductions
When acquiring fixed assets (whether brand-new equipment or previously used property) it’s critical to make the most of available depreciation strategies.
For federal purposes, bonus depreciation and Section 179 expensing can offer immediate deductions, but not all states conform to these federal provisions.
Some states require adjustments that either limit or disallow bonus depreciation, requiring you to track separate depreciation schedules.
Understanding these nuances allows you to claim the optimal benefit without running afoul of compliance rules.
A thorough analysis can reveal opportunities to front-load deductions at the federal level while planning for slower recovery at the state level.
Our Tip: Keep detailed records and consult with your tax advisor to coordinate depreciation strategies across jurisdictions. It can make a significant difference in your overall tax liability.
Tip #2: Evaluate Paying the PTE Tax
What exactly is a PTE tax?
A Pass-Through Entity (PTE) Tax is a state-level tax that allows certain business entities (S corporations, partnerships, and LLCs treated as partnerships) to pay income tax at the entity level rather than the individual owner level.
With the federal SALT deduction limited to $10,000 for individuals, many states have introduced Pass-Through Entity tax elections as a workaround.
This allows businesses such as partnerships and S corporations to pay tax at the entity level, effectively bypassing the individual deduction cap.
Electing to pay the PTE tax can create meaningful tax savings but it’s not a one-size-fits-all solution.
Each state has different eligibility requirements, filing processes, and deadlines. Plus, coordination with owners’ personal returns is crucial to avoid duplicate taxation or missed credits.
Our Tip: Weigh the pros and cons of the election with your CPA, especially if your business operates in multiple states with differing rules. Early analysis is key to taking full advantage.
Tip #3: Review Addbacks and Deductions
Often states deviate from federal tax treatment, which means that certain deductions taken on your federal return may need to be added back for state purposes and vice versa.
These “addbacks” can include things like:
Interest expense
Meals and entertainment
Depreciation.
Failing to make the correct adjustments can lead to underpayment penalties or amended return headaches.
On the flip side, you could be missing out on allowable deductions at the state level that you didn’t take federally.
Our Tip: Conduct a side-by-side comparison of your federal and state tax rules before filing. Even small discrepancies can have a big impact, especially in states with higher corporate or personal income tax rates.
Tip #4: Explore Available Credits and Deductions
Many pharmacies miss out on valuable state-level tax credits simply because they’re not widely advertised or well understood.
These can include:
Credits for job creation
R&D Credits (especially if you’re making new formularies or exploring new revenue streams)
Credits for investment in certain property
Clean energy initiatives credits
and more
In some cases, these credits can be carried forward or even transferred or sold, depending on the jurisdiction.
Each state sets its own rules for eligibility and documentation, so it’s worth taking a fresh look each year to see what’s available.
Our Tip: Don’t leave money on the table. Review your state’s Department of Revenue website or consult with a tax advisor who specializes in SALT to identify overlooked opportunities.
Key Takeaways
SALT planning isn’t just about compliance, it’s about strategy.
By maximizing deductions, evaluating your PTE tax election, staying on top of state-specific adjustments, and digging into credit opportunities, you’re not only reducing tax exposure but also making smarter decisions for long-term financial health.
As always, working with a knowledgeable tax advisor can ensure you're capturing every benefit while staying in line with evolving state and federal rules.
Vendor Showcase
Earlier, we gave some tips on inventory and what it means when trying to sell your pharmacy.
Which brings us to this month’s no conflict of interest vendor highlight: InventoryIQ!
Founded in 2011, Inventory iQ gives you a smart, data driven approach to optimizing your pharmacy inventory. They’ve helped nearly 400 pharmacies realize $60K on average in cash flow.
They offer Accurate, Verified, & Smart Inventory Counts delivered to your store, Data Mining & Analytics, and Perpetual Inventory Installation and Maintenance.
That’s All Folks
Big month in Pharmacy this month with the movement of HB1150 and tax season coming to a close.
As always, if you need help with taxes or accounting specific to your pharmacy we’re happy to help and as a Master The Margin subscriber, you actually get an exclusive deal on our Rx Assessment!
This personalized one-time service is when our team will do a deep dive into your accounting books and records as well as your tax returns, and give you actionable insights, a clear roadmap, and expert guidance tailored to your pharmacy’s needs to help you move forward.
Interested? Click below to schedule yours.
Disclaimer
The information provided through this podcast, including discussions on accounting, taxation, and key performance indicators (KPIs), is for general informational purposes only and does not constitute professional advice. The content shared is not tailored to your specific circumstances, and we may not be aware of all factors impacting your unique situation.
We strongly recommend consulting with your own tax, accounting, or other professional advisors to address matters specific to your individual needs before taking any actions based on the content of this podcast. Neither the hosts, the company, nor any associated entities accept liability for any errors, omissions, or actions taken in reliance on the information presented.
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