Who Should Pay for Dental CE Expenses?

If I'm taking a course and paying for hotel, etc what is the best way to benefit? Is it best to have my employer pay my CE and deduct from my pay check before taxes? Or is better for me to write a check for the CE and list it at the end of the year during taxes? How do people go about this?

Here's the deal:

You're better off letting the employer pay. You save both income AND payroll tax and you're employer saves their share of the payroll tax. Win\win.

IF you pay it personally you could list it as an unreimbursed employee business expense and you may lose a portion of it depending on your adjusted gross income OR you could be subject to AMT where you actually lose the benefit of the deduction.

If the employer pays you, you avoid all those what-if's & are GUARANTEED the income tax savings AND the payroll tax savings to boot.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Who Should Pay Lab Cost on a Dental Redo?

I pay my associate 40% of production and I pay all lab.

This past month my associate had to remake a denture for a patient. He just made this denture the previous month. Now there was a second lab bill. Since the patient doesn't pay for the second lab bill, who do you think should swallow that extra cost, me as the owner or should the associate pay for the second lab bill?

And yes I know I should be paying on collections, not production. But that’s the arrangement we had, I just took over his practice and when I was associating with him he paid me 40% of production as well.

When we structure the compensation of an associateship agreement we always have the lab (whether 100% or some partial %) come off the top (prior to the computation). A short math example will show why:

Lab taken off the bottom line:

$10,000 -- Monthly Collections per Assoc.
<$500> - refunds or reductions (varies)
_______
$9,500
X 35% - Compensation % (varies)
_______
$3,325 - Calculated Compensation
<$450> - 50% of incurred lab bill
________
$2,875 - Monthly compensation

Lab taken off the "top":

$10,000 -- Monthly Collections per Assoc.
<$500> - refunds or reductions (varies)
<$450> - 50% of incurred lab bill
________
$9,050
x 35% - Compensation % (varies)
_________
$3,167.50 - Calculated Monthly Compensation

As you can see from the illustration, it is rather advantageous to the Associate to have the Lab, and/or rework (if they are going to be required to cover it, which should be spelled out in the associateship Agreement) be reduced prior to the computation - to the tune of $292.50.

Your math is the way it is because in the 2nd example you've only charged the assoc 17.5% (35% of 50%) of their lab instead of 50% as in the first example.

IF the employer wants to charge the same % of lab as the employees comp, say 35%, example #2 should look like this:

$10,000 -- Monthly Collections per Assoc.
<$500> - refunds or reductions (varies)
<$900> - lab bill (100% mind you)
__________
$8,600
x 35% - Compensation % (varies)$
__________
3,010 - Calculated Monthly Compensation

IF the employer wants to charge a different % lab compared to comp, say charge them 50% of the lab & pay them 35% of their NET collected production then your example #1 is right on.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Collecting Money From a Dental Patient

I have a patient that owes me $2500. She was denied by Care Credit. Her ability to pay me is questionable. So here is my solution. Co-sign with her on Care Credit. I get my money. She pays them. If she defaults, I pay the balance to Care Credit then I begin billing her and add the interest to her bill. She likely will default with me as well, but now we are back to where we started plus some interest. What do you think people? Let's not address how I got myself in the situation of her carrying such a large balance without a prior financial arrangement......we will save that for another day.

....then she tells two friends, they tell two friends, they tell two friends & all of a sudden you have all these new patients wanting you to co-sign for them......hey, is that a great marketing idea or what ?

I vote crazy......

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Can I Take The Section 179 Personally?

I am buying about $200,000 worth of equipment. Can I take the benefit on my personal taxes and derive more of the benefit that I could otherwise through my corporation.

Maybe, however, why not keep it simple, take the deduction at the corporate level and reduce your w-2, therefore getting the benefit on the personal return. I guess I’m not seeing why you'd want to jump through more hoops to arrive at the same bottom line?

If you need to borrow money from the corporation to supplement your income, do that. Just make sure you document everything and seek advice from your CPA and\or attorney.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Buying A Dental Practice That Has An Out-Dated Look

Tim,

The more I read from you the more I like you.

My first practice was $30,000 (total purchase price) and it grossed a bit more than that in a year. I borrowed $70,000 more and spruced it up a bit, with results much like you described. A few years later (almost 20 years ago now) we sold the practice to Cycledoc who has further improved it an turned it into a thriving practice.

I think we were around 10 times the initial gross when we transitioned.Patients don't have emotional attachments to old dental stuff. All in all, I think a dental office should be "slightly" better decorated than the average home in the area.

Thanks Neil.

As I’ve said, I’ve been through a number of similar older practice buys. Two years ago a client bought a practice with the old brown 1970 wood paneling through-out the entire office, one of the first things he (and a friend) did was go in over a weekend and simply re-paint it a whitish\eggshell type color to simply brighten the place up. He said his team arrived for work Monday morning (he wanted to surprise them) and commented how different, brighter and better the placed looked AS did just about every patient that came in over the next couple of weeks. Over the next 6 months he replaced some of the older chairs, equipment, desks, shelving, updated the wall coverings (pictures, etc.) and had numerous compliments.

It created excitement among his team to the point that they wanted to help and make suggestions. Needless to say he's done VERY well with that practice, almost doubling the revenue from $530k to nearly over a million over the past 24-36 months.

This post first appeared on DentalTown.

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What are typical percentages for first year dentist of production and collections?

I've been practicing for one year, what should I expect?

I've heard some are getting as high as 40% of production and others as low as 25%.

I've been offered 30% production where I pay half the lab bill. X-rays and exams are not included as production. It seems fairly reasonable any thoughts?

The "typical" ranges I see are:

25-30% of PRODUCTION

30-40% of COLLECTIONS

If the owner wants the associate to be responsible for lab fees or a portion thereof, then the %'s noted above will be at the higher end of the ranges.

If the owner is NOT concerned about making the associate responsible for lab fees, the %'s used are closer to the lower end of the ranges noted above.

More and more I'm suggesting that owners keep it simple and pay 100% of the lab and simply offer a % of revenue to their associate without a lab cost charge.

The owner should monitor the associate's lab use to make sure the usage is kept in line with their "standards" and if need be, add some language that enables the owner to adjust associate compensation in the future IF lab gets outside specified norms.

For example, if the practice history shows that lab costs as a % of doctors production runs 12%, the owner can "charge" the associate for lab costs that exceed say 15% of their production.

I think you need to allow some cushion.

If this is written into the associate’s employment agreement than both are completely aware of the need to control the lab, and more importantly, it keeps the math simple and avoids errors that result in the associates believing they were cheated.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Scratch Dental Practice Quickbooks Question

My accountant send me a template in the CHART OF ACCOUNTS by a portable file in QB. It is for my new scratch office.Can any one show me where to add the entries? I have a lot of receipts from last year before I opened my office. Like equipment, supplies, build-out, etc…When I double clicked on chart of accounts I didn’t see any area to enter the info.Can anyone help me? I have set up new company, password etc. My accountant added some categories for dental in the chart of accounts. I don’t know where to start. Help!

It seems to me that you're starting in the wrong place (from the sound of it).

There are two ways to accomplish what I think you want to do:

1. cut yourself a check as a reimbursement and split the check into the various categories (accounts) you need to, or

2. prepare a journal entry debiting the categories (accounts) you need to for the expenses and crediting either a capital account or a liability account.

If what I just wrote is as foreign to you as occlusals & bicuspids are to me, shoot me an email.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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Overhead Calculation - Should Dental Associate's Pay Be Included?

I can understand not including owner DDS compensation in overhead calculations, but it seems to me that paying an associate as an independent contractor should be considered overhead in some fashion. This isn't much different than paying hygienist on production % is it?

You could say that. Isn’t it even closer to paying a dentist for their dental services, like the owner? If the associate wasn't there who would be producing that revenue, the dentist or hygienist? If the associate is doing hygiene then you should include their comp in OH.

If the associate's pay is not accounted for as overhead then this is implying that the owner DDS is receiving the entire production of the associate.

Not true. The associate comp can still be tracked separately from all other OH.

This will allow you to compare your numbers to other practices. If you include the associate comp in your OH, your OH will ALWAYS appear to be higher than other practices.

For example, if I shoot for 25% staff compensation and the associate increases the total office production by 400k yet I pay him 140k, which is not factored into the equation, then the goal is easily achieved when using the total production.

One of the BEST ways to decrease OH as a percent of revenue is to increase revenue.

If the 140k which I pay is added, then the percentage is not easily attained.

That’s because it doesn't belong. If you're going to do that then you may as well add into compensation 30% of your collections as though you were an associate as well. After all, part of what an owner makes is based upon dental services, the other part is based upon being an owner.

Or are you just eliminating the associates 400k from the production totals as well?

Oh no.

Bottom line is that it depends what you're trying to accomplish. If you're trying to compare your OH with every other similar type practice you should not include associate comp in OH.

If you're trying to analyze the profitability of a practice for a transition (sale or purchase) than you need to include "reasonable" dentist compensation as an expense to determine true cash flow as a non-dentist owner, which will help determine value.

This post first appeared on DentalTown.

Send your questions to Tim Lott, CPA, CVA at tlott@dentalcpas.com

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