Tuesday, March 29, 2016

Should You Employ Your Children? What are the Tax Benefits?

Did you know? If you hire your children as employees to do legitimate work in your business, you may deduct their salaries from your business income as a business expense. This can be a substantial benefit for some as it allows you to shift part of your business income from your tax bracket to your child’s bracket. This can be a win-win situation for both you and your child. Not only does it allow your child to learn the value of work but it also provides them with insight on the family business. And, it’s a great tax deduction for you! You can pay your child under the age of 18 up to $6300 tax-free by taking the standard deduction. That’s money your child will have to spend on a car, college, clothes, gas, etc.
Here are some things you need to know
  1. Your child must be a qualified dependent.
  2. Pay real wages for real work, paying in pizza and still taking the deduction won’t fly with the IRS.
  3. The job must be age appropriate and salary should reasonable match job responsibility.
    Contact us for a list of jobs kids can do in a dental office.
  4. Document the job description and employee agreement. To avoid unnecessary scrutiny, maintain proper payroll documentations.
  5. Keep a timesheet of hours and day worked. This will help substantiate the amount of money received for work. It is good practice if the child deposits the paycheck in a bank account rather than cashing them as it shows the IRS the child took possession of the funds.
  6. Be aware of the tax requirements, payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the business is a sole proprietorship or a partnership in which each partner is a parent of the child. However, children who employed by S Corporations or partnerships that include nonparent partners or corporations are not exempt. Also, payments are not subject to federal unemployment tax if the child is under 21.
If your child qualifies, you can avoid paying approximately 22 percent of their wages in tax. Before making the final decision of adding your child to payroll, consult with your CPA as the actual tax savings depends on your tax rate, your child’s rate, and the entity under which the business operates. For more questions on the benefits of employing your child contact us at 844-Dent CPA or visit our main blog page at  www.dentalcpas.com/news-events/.

Tuesday, March 22, 2016

How to Conquer Leadership Challenges

It’s always great to hear about young dentists starting their practice, establishing a new partnership, or purchasing an existing practice.  While some dentists are more comfortable with embracing the change and smoothly transition into their new roles, others have difficulties. Sometimes it’s hard being the new kid in town or one of the youngest members of your staff. Let’s face it; some people make the assumption that with youth comes lack of experience and regretfully, that can translate into a lack of respect. If you are a young dentist or new partner, it can take some time to establish your role of authority with another staff member who may have been around for 15+ years. Here are a few tips to consider for taking the lead:

  • Promote A Respectful Work Environment

    1. Always handle yourself in a positive manner; set the standard and hold all members of staff to it.
    2. Ensure that you and your partner(s) are on the same page before taking action on employee relation issues. All partners need to be willing and committed to making changes if the current staff cannot handle their positions. Without a mutual understanding, your attempts at change will be tested.
    3. When dealing with contentious issues, prepare yourself before approaching, it will allow you to have a clear mind and better handle any backlash.
  • Establish Yourself in a Position of Authority

    1. People will only treat you how you allow them to, so grab the bull by the horn and take ownership of your role. If you plan to grow with the practice and eventually become the owner, it’s never too early to start acting in the best interest of YOUR practice.
    2. Managing a staff of people who are older than you can be challenging, however, stand your ground is a respectful manner.
  • Be specific when addressing employees
    1. Broad or general statements give the employee room to come up with an excuse.
    2. Ensure manuals are updated and all staff members are aware of their role and responsibilities in the practice.
  • Hold Employees Accountable
    1. Review the portions of his or her job duties that are crucial steps in office operations.
    2. For example, if an employee is consistently failing to update health charts, have a direct conversation with that individual. Address that you have observed the job was not being done, stress the importance of the task to the patient’s safety and express that the problem will not be tolerated is no corrected. After all, patient’s safety is a top priority.
These tips are to get you started. We also recommend you doing some research on management styles and tackling leadership roles. For more information and articles on practice management, visit our blog page at /http://www.dentalcpas.com/news-events/

Tuesday, January 26, 2016

Six Mistakes to Avoid When Filing Taxes

  1. Filing out tax forms with incorrect SSC numberThe IRS computers will automatically reject your deductions and credits if your Social Security number is wrong. This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes.  Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits. Since the majority of returns are now being filed electronically, a correct social security number is crucial. An incorrect social security number will result in the reject of an e-filed return. Double check all the numbers before submitting your return to ensure they are not transposed or missing digits.

  2. Incorrect Federal ID number used on 1099 MISC.Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number.  If they use the wrong number, the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return. Also, watch out for spelling your business name incorrectly. Simple spelling errors can lead to rejected returns.

  1. Not reporting non-deductible IRA contributions.Any contribution to an IRA, whether it is deductible or non-deductible, should be reported, so when you withdraw it, you are not taxed on it.  Plain and simple, all contributions to an IRA must be reported.

  1. Incorrectly reported estimated tax payments.If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment.  Provide the check numbers, dates of payment, and the amount of each payment.  What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two.  If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

  1. Incorrect bank account information entered for refunds.If you are having your accountant file your returns electronically and want your refunds directly deposited (or payments automatically) withdrawn from your checking or savings account, provide the correct account information including name of bank, bank routing number, and account number. This will avoid delays in processing your refunds and/or payments.

  1. Forgetting your signature on your return!You must sign your taxes for the IRS to process your taxes.  Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned.  These software packages do not allow documents to be sent unless every step is completed.

Monday, December 21, 2015

2015 Tax Extenders Passed!

On December 18th, Congress and the President signed into law the “Consolidated Appropriations Act, 2016” and “Protecting Americans from Tax Hikes (PATH) Act of 2015”, both of which provide a number of significant tax changes. The Protecting Americans from Tax Hikes Act will grow our economy and help American taxpayers keep more of their hard-earned dollars. This Act extends a number of important tax breaks and makes many of them permanent.
Keys Facts You Should Know 
According to Accounting today, here are some of the over 20 permanent provisions:
  • Increased expensing limitations and treatment of certain real property as Section 179 property;
  • The exclusion of 100% of gain on certain small business stock;
  • Reduction in S corporation recognition period for built-in gains tax;
  • The enhanced Child Tax Credit;
  • The enhanced American Opportunity Tax Credit;
  • The enhanced Earned Income Tax Credit;
  • The deduction for certain expenses of elementary and secondary school teachers;
  • The deduction of state and local general sales taxes;
  • Basis adjustment to stock of S corporations making charitable contributions of property.
For the full list of permanent tax provisions, click here
Provisions extended and modified through 2019
  • Bonus depreciation (50% for 2015-17, 40% in 2018, 30% in 2019);
  • Delay on high-cost heath insurance plans (so-called “Cadillac” tax) from 2018 to 2020;
  • The New Markets Tax Credit  providing $3.5-billion allocation each year through 2019, the carryover period for the credit has also been extended to 2024;
  • The Work Opportunity Tax Credit modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more) to 40 percent of the first $6,000 of wages.
Provisions revived and extended through 2016
  • Modification of the exclusion of mortgage debt discharge;
  • Mortgage insurance premiums treated as qualified residence interest;
  • The above-the-line deduction for qualified tuition and related expenses;
  • Over a dozen incentives for energy production and conservation.
For more information on these tax provisions and how they may impact your business or personal tax situation, please contact your Dental CPA tax representative directly.  You can also contact our office at 410-453-5500, and one of our staff members will be happy to assist you.

Friday, December 11, 2015

Why You Need Certain Information for Your Due Diligence – Part II

I decided to write this blog series mainly because of the pushback we get from sellers’ advisors on some of the information we request when representing the buyer. The second items I’ll discuss are the practice management reports for production by provider by ADA code and production by payor.
What’s interesting about the pushback we get on these reports is that we want these reports when we’re representing the seller and assisting them in coming up with an asking price or a value for their practice. We believe we can do a more thorough job for the buyer if we have this information.
Of course, we’ll get the standard response of “it’s in the information we already sent to you. Unfortunately, that’s not correct. Many times what they’ve provided is a summary of the production by category like diagnostic, preventive, restorative, etc. and it’s usually for the entire practice, not by provider. While this might be good information for practice management consultants to get an overview of the practice for their consulting engagements, it’s never enough information for a buyer who needs to understand how the collections are being generated and who’s generating them. We may also get a fee schedule and/or a practice production by ADA code. Again, good information, we just need more.
You see, the buyer is in a different position than the seller. The seller knows what they do; they know what their hygienists do, but guess what, the buyer has no idea. The seller could be performing procedures that the buyer doesn’t perform which could mean the buyer can’t replicate the seller’s collections. Or, maybe the buyer does procedures that the seller doesn’t so there may be some upside potential for the buyer. You can’t determine that without seeing the procedures, ADA code no matter what the practice questionnaire might state.
The other problem we often see is that many practices put the doctors’ exams under hygiene production. So we’re told the hygiene production makes up 40% of the total revenue of the practice when it’s more like 25%, which is closer to normal. Without seeing the detail and taking the seller’s word, the buyer might draw an incorrect conclusion that there’s a lot more dentistry to be done.
The two other aspects of knowing the true production by provider is A) we can evaluate the hygiene production to their wages to see if it falls within industry norms and B) we can better assess “reasonable” compensation for a dentist when performing our price assessment. We see valuation reports that have used incorrect assumptions based on bad PM reporting where practice prices have been overstated because “reasonable” doctor’s compensation has been understated based on dentistry of only 60% of total practice revenue instead of 75%.
The other PM report we ask for, production by payor, shows the total number of PPOs in the patient base. This also becomes important when trying to assess the collections generated by PPOs in which the seller is IN network with and the percentage of patients in PPOs where the seller is OUT of network.
Many of you already know about the Delta Premier issue, where buyers may not be able to retain the Delta Premier fee schedule w/o also participating with the regular PPO and therefore, a buyer won’t be able to replicate the seller’s collections in many cases. However, what many buyers of FFS practices fail to understand is the percentage of patients in a FFS practice that belong to PPOs. The buyer runs the risk of having those patients leave the practice to look for an IN network provider when the seller leaves the practice. The attrition rate is generally known to be higher in a FFS practice for a buyer anyway; if the buyer also knows that 40% of the patients have a PPO, then they need to appreciate that the risk of attrition could be worse.
This report will also be helpful to a buyer who is buying a FFS practice with the intent of potentially joining PPOs in the future, or a buyer of a PPO/FFS mix practice who has the intent of potentially dropping out of some PPOs in the future. It’s very useful information for the buyer and, unfortunately, we get pushback from sellers and their advisors when asking for these reports.
So here are some real life examples of why these reports can be very enlightening for a buyer:
  1. I’m in the middle of an assessment right now on an FFS practice where the top ten PPO payors represent about 35% of the practices total production. For the buyer, if they remain FFS, they run the risk of higher than normal attrition as patients may take the opportunity to go to an IN network provider. The buyer is also contemplating joining some PPOs as the practice revenue isn’t very high so they now know what the potential impact could be to the existing patient base and revenue by getting into certain PPOs.
  2. As mentioned above, we’ve seen valuation reports calculating reasonable doctor’s compensation for dentistry using a lower doctor collection figure because the doctor’s exams were under the hygiene production column. This has the effect of creating a higher value than would otherwise have created with proper information.
  3. We’ve seen other dentistry codes thrown under the hygiene column like crowns, extractions, etc., almost always by mistake. However, with production by provider by ADA code reports we can make the proper adjustments and provide a more accurate picture of practice price and performance for the buyer.
  4. We’ve seen situations where practices were labeled FFS when in fact they were a mix FFS/PPO practice and the PPO portion was significant enough that the buyer chose to walk away. We determined this when comparing collections to gross productions were less than 85% of gross production. In FFS practices, collections are generally greater than 90% of gross production.
  5. Lastly, we’ve seen production by provider reports that show other doctor providers in the past, like specialists where their revenue wasn’t removed from prior year collections even though their compensation was removed. Needless to say, prior year collections were overstated so that the asking price was way overstated. We would have NEVER known this if we only relied on a tax return and/or P&L collections.
The fact is most practices have the PM software that can generate these reports easily, even if the office has to contact the software company to find out how to generate these reports. There isn’t any reason why sellers and their advisors can’t provide these reports and in our opinion, there isn’t any reason every buyer shouldn’t be asking for these reports.
Written by Tim Lott, CPA, CVA. For more information on our services, please feel free to contact one of the members of the Dental CPA team by calling 844-DENT CPA or emailing info@dentalcpas.com.