Dentist Has IRA to Roth Conversion Question

For someone who has maxed out their ability to invest in tax-deductible products (i.e. 401k/profit sharing/SEP), wouldn't it make sense to contribute money that otherwise would be invested in a taxable account to a non-deductible IRA and then immediately convert it to a ROTH? Now that the conversion income limits are gone, I would think this is an easy way to avoid taxes on the earnings going forward. You could invest $5000 for yourself and another $5000 for your spouse each year, unless they change the rules again.

Just make sure that NONE of your IRA accounts have pre-tax contributions or you WILL owe tax on a prorate portion of the $10,000 you want to roll over. People have asked me if they can do this and they've suggested that they'll use a different IRA account for the non-deductible contributions and just roll that over. This CAN'T be done. You MUST consider ALL of your IRA funds when considering a rollover of just ONE account.

If you do have IRA accounts with pre-tax contributions or earnings and your employer plan allows employees to roll their pre-tax IRA monies into the employer plan, you can do that leaving ONLY the after-tax contributions within your IRA and then roll to a ROTH without a tax issue.

Make sure you run this by your CPA!

This first appeared on Dentaltown.

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

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Dentist Has Questions About What Entity He Should Chose.

I'm setting up a solo practice in MD and will do some independent contracting in MD, VA, DC. Which is advisable: S-Corp, LLC, PLLC?

It depends (typical CPA answer, right?)

Seriously. It depends on where you form the entity. For example, MD has the LLC, VA has the PLC, and I’m not sure about DC. It's easy to research though.

All that said, I’d like to address the one thing you mentioned about starting up. IF that's going to be funded through a bank I'd be leaning towards LLC/PLC so you don't get trapped with the S-Corp tax basis issue. Unless you get the loan IN your individual name and lend those funds to the S-Corp.

I'd have to ask you a couple of questions to determine if C-Corp would even be an option, but I doubt it.

Oh, and even IF you create the entity in say DC, if you work in the other states you generally have to register that entity in those states to do business and depending on which district or state is your residence you may wind up filing returns in more than one state.

Good luck!

This first appeared on Dentaltown.

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

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Should Dentist Let Seller Carry Loan or Get a Bank Loan?

I am thinking about taking over a practice and the senior dentist said he would owner carry. Do you guys think that this is a good way to go rather than getting a loan through the bank? What would be a fair average interest rate should I be looking at? I'm guessing 6%. I would appreciate any input. Thanks

Jason Patrick Wood

There is a lot more risk to the Seller when there is an "owner carry back" and it is very atypical for a seller to carry the whole thing. Anything atypical is a red flag unless the owner can explain this with a reasonable answer. Typically when an owner will offer to "carry" it is because:

1. The practice is grossly overpriced.

2. There is something about the practice that dental lenders do not feel comfortable about.

3. The Seller has been trying to sell the practice forever and can't find a buyer.

Tim Lott, CPA

Jason, I’ll give the seller the benefit of the doubt? Maybe…

1. They really want to make it easy on the buyer by not having to jump through the third party lender process.

2. The seller wants to earn more on his money than the <1% they're currently earning on their savings account.

3. The owner doesn't want to pay the large commission on an annuity and wants to create their own, or

4. Maybe the seller wants to spread the tax bite out over many, many years.

This first appeared on Dentaltown.

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

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Dental SIMPLE Plan Question

I currently have a SIMPLE. I essentially put $1000/month into it or the $15,000 a year plus the 3%. I feel like I am paying too much tax along with the rest of the world. I want to adopt another plan but I am unsure of the costs per employee etc. I have 3 employees and would love to put away more for them but I’m just a bit unsure of cash implications...

1. One year’s performance does not make or break a retirement plan or any investment for that matter.

2. How have you factored the $15k into their overall compensation package?

I would agree though - if your retirement plan is consistently inefficient as it relates to costs vs. benefits and if you don't factor in the staff contributions when determining raises and bonuses, this plan may not be your best option.

Good luck.

This first appeared on Dentaltown.

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

For more information or to sign up for our newsletter, please contact arose@dentalcpas.com

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