Tuesday, January 27, 2009

Dental Equipment Tax Deduction Question

Hello, I am starting a practice that will open in April. The equipment rep. has told me that I can deduct the equipment that I order as long as it is delivered before the end of the year. Recently my accountant told me that it won't be deductable because it wouldn't have been in use. I am more inclined to believe my accountant on this, but I wanted to get advice from others before I decide what to do. Is my accountant being too conservative?

The code says "placed in service" heck, you don't have to pay a dime for it (could have borrowed 100% or payment due in 30 days as long as there's a loan) as long as it's "placed in service". Code doesn't make a distinction as to where it's placed in service, old or new location, or even temporary location before it's permanent one. Do you have a buddy's office you can have it delivered to and see a couple of patients on the weekend with it before the end of the year?The more important question of course is do you NEED to take THAT deduction this year?

Just because you CAN take a deduction doesn't mean you should, may be more valuable to use next year or thereafter.

This post first appeared on DentalTown.

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Friday, January 23, 2009

Dental S-Corp Unreasonable Compensation Issue

I am going to do SEP IRA for 2008 after I bonus myself and my wife (an employee) in my s corp. I want to max out at the 46k for me and my wife so I will bonus both of us so we will make a total of 360k and do a SEP for 90k. I have no other employees that are eligible acc to my advisor. Here is the part I am leery about. My advisor says to do the SEP with Oppenheimer funds he recommends class a shares at an initial entrance fee of 4-5% but ongoing fees of around 1%. He says this is better than class b or c shares because I have a long time before these funds are eligible for withdrawal. What do think about this scenario?

Thanks

My question is what does your wife do to earn $180k/year?

She is a FT employee and does A to Z, why does it matter? My accountant says it is fine because we will be paying taxes on that bonus. Do you have input on my concern about the SEP and the fees?

Sorry, no advice on the fees, that's an investment issue that your investment adviser needs to counsel you on.

On the salary and why it matters? There are still issues with S-corps and unreasonable compensation to owners or those related to owners. While I agree that even if the IRS had an issue with $180k being unreasonable for her duties you'd likely pay less Medicare tax if you let that income flow through as S-Corp division (maybe $3,000 less??). However, my concern would be what if they did reduce her compensation to a more reasonable level, how would that impact the SEP contribution you made on her behalf? They may disallow that deduction AND you would have overfunded the plan which comes with excise taxes (for overfunding) and between those taxes and the loss of deduction for the excess contribution you're exposing your self to a real bad situation IF you get audited and IF they take that position. It’s Russian roulette.

Just my opinion mind you, maybe you'll be lucky and it'll never be an issue.

Good luck.

Spoke to my accountant. He says S corps do not have that distinction anymore, C corps do. He said he has not see in a long time unreasonable compensation as the issue with an S Corp, he says under compensating is an issue because of avoiding the 15% SS tax and bonusing out a large amount of money that avoids SS tax.

Hmmm, it's pretty common knowledge that the IRS has been targeting S-Corps for unreasonable compensation and you're right, usually under compensating the owner to avoid the SS and Medicare taxes. However, whenever they audit the S-Corp for anything they look at everything and over compensating a related party by any entity to increase the retirement benefit for the owners and their family is a HUGE no-no. I’ve had 3 S-Corp audits in the past 3 years, all looking for unreasonable compensation and I can't remember the last C-Corp audit I’ve had for any reason.

So I am going to keep my wife's salary where it is and bonus out to me so I can contribute the max to the SEP of 46k. The remaining profit will pass through and I will pay income tax on it, and no SS tax. If I bonused my wife, I could owe a ton of SS tax, like you stated-however a lot more than 3k!

You’re right, if you bonused out your wife in excess of say $60k you'd have both SS and Medicare taxes of nearly $8k on $100k of her w-2 compared to $100k of your S-Corp profit.

Also, on something you said above, I don't think SEP's allow 100% contribution of w-2, deferral plans allow that, like 401k's or SIMPLE's, SEP's maximum contribution is 25% of w-2 as I recall.

Interesting! Should I consider a C Corp then? I will sure be looking into this.

No, you're doing the right thing with the S-Corp. There may be other ways to maximize retirement plan contributions for you and your spouse while minimizing the contributions to others with different plans (other than a SEP) so take that second opinion consult and ask what you can do to achieve your desired results. There are a lot of variables and the results might not be great, at least you'd have a pension professional providing the analysis, not an insurance professional.

So to recap, I bonused myself to allow max SEP contribution, but left my wife at original W-2 amount. I will do a sep and then put 25% of her w-2 wages into the sep. I accelerated some expenses (I know more taxes next year with Obama, but I was dealing with here and now and an 85k tax burden(200k+ profit) so I wanted to reduce it. I will still end up with at least 100k profit and just pay the taxes on it. This was the first year (3rd year in business) with that size profit so I was over thinking it-although I should have bought the periolase!

Is sect 179 gone in 09, and do you need to purchase by 12/31/08 to utilize?

Sec. 179 is still alive and well in 2009. For equipment to be eligible in 2008 it should have been purchased AND placed in service by 12/31/08.

This post first appeared on DentalTown.

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

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Dental Office Lease Buyout

I am currently leasing 1,000 square foot office space for $1,100 month and have 27 months left on the lease at the $1,100. Owner would like for me to leave so next door dermatologist can expand. What would be a reasonable amount to ask for to leave early? Dermatologist probably has 3-4 times the space I do and probably pays 30-50% more per square foot than I do. If I left, she would occupy 3/4 of the building. Condo space nearby would be about $225,000 with most of the build out. I have been in this space 25 years and had planned to spend 13 more years there. Thanks for any help.


You should ask for as much as you think the dermatologist is willing to pay, I know that sounds vague, I don't think there's an easy answer.

At the end of your lease you may have to leave any way so there are a number of ways to calculate a number to ask for:

1. Lets say you leave 12 months early, maybe the difference between $1,100 and your new rent plus the lost earnings on your cost to move and build out for the 12 months?

2. Maybe the cost for your move & 50% of your new build outs?

3. $50,000

Just some random thoughts.....

This post first appeared on DentalTown.

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

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Friday, January 9, 2009

Counting Dental Charts in Dental Practice Evaluation

I am considering a practice acquisition and am scheduled to meet with the owner. I have already toured the office and have some information.

At this appointment I am going to be counting the charts and verifying the information given to me.

So I was looking for suggestions on counting charts. What is a good technique? What would you consider an active patient- seen in the last year? What types of things would you recommend looking for?

Thanks for the help

What I want to know is the number of patients that are coming to the office on a regular basis.

The baseline number is those patients that are seen twice per year in your hygiene program. Therefore, even looking at the hygiene schedule for the past six months or the last 12 months and dividing by 2 will give you a good baseline. You could even count the number of hygiene appointments in the last 18 months and divide by 3, you'd still get approximately the same result.

I usually add 10-15 % to that figure to arrive at the "active" number. Let’s face it, the patients going through the hygiene schedule will almost always drive the production of the office, they are the backbone.

There are always many more charts, I just don't consider them "active".

Are they important? Probably, I just wouldn't rely on them in terms of assessing what I’m buying.

This post first appeared on DentalTown.

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

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Calculating Dental Office Overhead

I am trying to work out the overhead at our office, because it is just ridiculously high. But I have a few questions:

1. Where do you place the doctor's salary and benefits?

Separate from ALL other expenses.

Does that figure in to overhead for a practice where 2 DDS's are co-owners?

No, neither does non-owner dentist compensation IF you're trying to compare to benchmarks or others

I am assuming if it did, it would be kept separate from wages for employees.2. Is the office manager salary added in with the rest of the employees or it is separate?

Employees should be broken down into at least three categories, if not four, assistants, hygiene and front desk (some call this administration\general I suspect). IF your office has an office manager, sometimes they get their own category.

Any help would be appreciated.

Also review this benchmark report from a survey we did. Focus on the right side of the page, it goes from maximum to average.

This post first appeared on Dentaltown.

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

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