Dental Equipment Depreciation Question

Hi, I have few questions regarding taxes on a scratch startup practice. My accountant told me that anything removable like equipment/furniture/cabinets are tangible expense which you can deduct right away. However, construction expenses such as paint, ceiling, electricity, plumbing is considered lease hold improvement which will require 39.5 year amortization (Yikes!).

My question is:

1. For equipment installations (Chairs, Compressors, Vacuum) , can 'Installation labor fee' be deducted immediately? (I hope they are since this equipment is removable.)

Generally, the costs incurred to get the equipment in service, including labor, sales taxes and fees are treated as part of the asset cost and therefore deductible along with the cost of that asset depending on how you choose deduct whether it’s using Sec 179 or normal depreciation.

This first appeared on Dentaltown.

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Should Dentist Lease or Buy Office?

Right now we are leasing a 1600 square foot office for $5,000 a month (we need additional room for growth).

The opportunity has come up to purchase a 2800 square foot condo for 1.2 million.

Who/what type of person should I talk to about seeing how my monthly financials will run? I just want to make sure I can handle the increase in payments.

I remember from school, once you own the place, there are more ways to shelter money, so your actualized monthly expense is less than if I were to lease

The twist for you is your statement about wanting to expand. Is it a want or a need? If it's a need, how will it impact revenue? You need to run some projections on how 2,800 square feet will impact your practice, both in expected revenue increase and OH increase and compare that to renting 2,800 square feet.

That’s what I would do.


This first appeared on Dentaltown.

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

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Different Type of Dental Start-up Arrangement

Any ideas how to get financing for a practice I want to buy the patients from and then relocate them into another dentist's space where I will rent (share space)?

The office I want to move to is owned by a dentist and they work 2 1/2 days / week so the rest of the week it is empty - perfect, I thought, to move patients to. I have not worked at either location and the practice that is available for purchase cannot stay where it currently is.

Sure, let the seller finance! Offer them 25% of total revenue generated from that patient base over the first 24 months (winds up being 50% of 2 year average) and pay that amount out over 3-5 years.

Good luck!

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

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Dentist Wants to Add His Wife to Payroll for 401k Benefits

I have a safe harbor 401K + profit sharing plan set up at my office.

I'm assuming that this is a no brainer. Should I put my wife on payroll and defer the $16,500 to her retirement plan? This is the 1st year that she hasn't worked for another company and had her own plan with matching from her previous employer. I have a 4% match for those who choose to participate. Then of course the profit sharing portion to add at the end of the year if cash is good.

And I'm also assuming that I still pay the payroll tax on this amount.

Treat her like you would any other employee. If audited you better be able to show "reasonable" wage for her work.

So what would a "reasonable" wage be for a bookkeeper? She's an accountant but not a CPA--she does everything except tax filing for the office (she does budget, monthly cash flow analysis, marketing ROI, etc). I would think 15-20K would be considered "reasonable" but that sounds very subjective.

To add to our concerns, here's a recent tax court case related to a self-employed medical reimbursement plan... this case hits the point as to how careful you really need to be when simply putting any family member on payroll:

Income Tax—Sole Proprietor's Medical Reimbursement Plan: A sole proprietorship can sponsor (and deduct payments to) a medical expense reimbursement plan that provides family coverage for its employees, including the proprietor's spouse. However, the Tax Court previously disallowed the deduction where the spouse had been doing the same work for several years without compensation, then was paid $100 a month plus medical benefits for her duties in a later year. The Tax Court reasoned that (1) her payment of medical expenses simply relieved her husband of his obligation under Kansas law to pay for her medical expenses, and (2) she obtained no economic benefit from checks written from the couple's joint checking account because she was an equal owner of the funds in the account. The 10th Circuit has now vacated this decision and remanded (returned) the case to the Tax Court to consider whether or not the spouse was a bona fide employee, starting with a consideration of the common law worker classification factors. Shellito v. Comm., 108 AFTR 2d 2011-XXXX (10th Cir.).

Thanks for the heads up and research Tim!

You're welcome

I think I'm fine in this regard b/c this is her 1st year that she's not being employed full time in the corporate world. She has made around 5-7K/yr on my payroll to date and that was working full time at an outside business. So now that she's working around 1000 hrs/year with me, I think I can justify a $20K salary.

You bring up some great information which says to me that I need to fully document everything in case of an audit. However, I don't require any time sheets or clocking in/out of any of my employees so I won't have that information if the IRS asks anyway. Problem there or not?

It shouldn't be a problem with the IRS since you don't require it for any employee. Trouble may arise if you ever have another employee clock in or out or somehow tracks their hours and you have NO support for a family employee.

This first appeared on Dentaltown.

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

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Can Dental Associate CE Cost be Deducted from Salary?

I would like to take an implant CE course that will cost ~$6500. I am an associate in an office that does not pay for my CE. I would like to have the practice pay for this course and take the cost out of my gross income. If I understand things correctly this will save them payroll taxes and I will pay for the course with pre tax dollars. The CPA (non-dental) for the office seems confused. Maybe I am not communicating the situation properly for them? Or am I looking at things wrong?

Yes, it's likely miscommunication that's causing confusion. The practice CPA may think you're asking the practice to LEND you the money and withhold it to pay it back.

I have no doubt the CE would be deductible to the practice, therefore, maybe you can simply ask it this way:

"In lieu of paying me my normal wage, will you pay for CE up to $6,500 for this course"....of course you'll have to work out the timing since I’m guessing just one of your pay checks may not be enough to cover the full $6,500.

This first appeared on Dentaltown.

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

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New Dental Office Expenses - Where is Break Even?

Hi! I opened my office brand new build out since July 13th. I’m struggling with staff turnaround, training. My overhead is 35K for month. Can I get advice in regard to best marketing? How long does it take to pick up the practice? I am kind of nervous about the overhead and running out of working capital. Thank you.

• Rent $4000 (Comcast +AT&T + electric + garbage + security + nea attachment + equip maintenance + electronic)

• Claims $2000

• My loan $7000 (7 yr loan for 400k)

• Supplies $2000

• Lab fee $1000 to $1500

• I have 3 staff, one front 2 back, at 40 hours per week I am open Tuesday to Saturday with some evening hours so employees when hired they wanted make sure get 40 hours. ~ 200 hours per month at $43 total pay $8600

• Doctor pay 3000 per month

• Payroll +unemployment taxes $2500

• For quicken +accountant + license +all malpractice + disability insurance $1000

• Marketing 2000 (did back of the receipt for a grocery store + mail post card + creating web site

• Miscellaneous goodies +tooth brushes for patients + gift cards $200

First month I produced 7,000

2nd month 20,000

3rd month so far 10,000

I just want to at least break even. Am I doing OK? Is this normal?

Staff wages will eat you alive. With $2,500/month in payroll taxes that's almost $400k/year in wages. $36k appears to be you so that's maybe $360k for other staff ? That's fine if you're doing $120k/month in revenue.

You must be burning through your cash. the last start-up client I had that felt obligated to support his initial staff for 40 hours per week when the volume couldn't support it had to walk away from the practice, their loan and their house.

You must change that NOW.

Also, I hope you aren't an S-Corp with the loan in Corporation name.

1. You likely won't get the benefit of the tax losses unless you funded some portion of the start-up.

2. You're creating unnecessary payroll taxes on your own comp, which eats into precious cash flow.

Good luck!

This first appeared on Dentaltown.

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

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