Dental Scratch Start-Up - One Corporate Entity or Two?

I'm in the process of having another office. A scratch.

Should I open it under my current corporation, or should I start it under a different corporation.
Maybe in about 3 years, I'd like to sell my current corp. I don't know. But it’s just more paper work to start a second corp. Is it worth the hassle?

Any thoughts on what is the right way to go? Pros and cons.

Thanks.

In my opinion, the key to the answer is in your question and that is if you're contemplating selling EITHER location soon and not the other, I would suggest you have a different entity. Why?

1. It helps keep things separate in order to better evaluate the practice.

2. It should limit any potential liability to that practice that has the problem.

3. If you sell one and not the other, you don't have to "open the books" of the one you're keeping.

Now, if you plan on having both locations for 10-15+ years you could go with one entity initially and then separate them 3-5 years before you plan to sell one.

Believe me, this comes from experience. When the potential buyer evaluates the practice, and it's combined with another practice, you ask a lot more questions. As the seller, you have a lot more explaining to do and a lot more convincing to do that supply expense is really JUST for that office and not the other, that lab expense is JUST for that office and not the other, etc.

The argument will be "well even with two entities you can still have the one entity pay the other’s bills" and this is true; however, at some point you have to give the benefit of the doubt until proven otherwise in my opinion.

What kinds of savings would there be with only having one entity?

The savings of a second tax return, bookkeeping, accounting, other state filings maybe.

 I heard that section 179 is scheduled to come back down to $25,000 per year.  That would be very bad to have two practices under the same entity. 

Why?

Can you elaborate on any thoughts you have.

Not much more than what I did above unless you have any other specific questions.

This first appeared on Dentaltown.

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

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How Does PTO Impact Overtime Pay at a Dental Office?

We are trying to figure out how to handle this week as we are a startup practice.  We are paying for holidays so our employees will get 8 hours of pay for today.  Tomorrow the office is closed and they can use paid time off (PTO). How do most people handle PTO if it would cause your employees to go into overtime for the week?  Do you cap the number of hours the employee can elect to use so they can't go over 40?

You may not know this, OT is due on hours actually WORKED.

So in your example, let’s assume someone worked 25 hours Monday- Wednesday and you give them 16 hours of benefit time for Thursday and Friday. That’s 41 hours; however, they only WORKED 25 hours and therefore, you would simply pay them straight time for all 41 hours, OT of 1.5 x their hourly rate is NOT necessary in this example.

This first appeared on Dentaltown.

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

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Dental Associate has Practice Purchase Questions

I'm going to begin a 1-2 year associateship with the opportunity to buy 50% of the practice after that period.  I've hired a practice sales broker/CPA to provide me with a second opinion on the appraised value of the practice.  

Jason Wood, Dental Attorney:

Is he representing you as a CPA or as a broker?  There is a big difference in fees I would imagine.   

I'm trying to arrange it so everything about the associateship, transition, and purchase of the practice will be arranged in a contract prior to beginning.  

Jason Wood, Dental Attorney:

This is extremely expensive to do.  My recommendation would not be to do this but to have everything addressed in the associate agreement with the particulars of the deal (ie purchase price, ability to acquire 50% of the building, etc.) being built into the contract.  Otherwise to properly do this now will cost you around $15,000.  Wait until you know you can work together before spending this kind of money.  

However, I'd like to receive an appraisal of the building/real estate, but the CPA has informed me that it can become very expensive to have the building appraised.  Although the CPA does not appraise office buildings himself he has recommended an agent he has used in the past.  He has also told me that the building appraisal could cost several thousands of dollars and may not even matter since any bank/lender will want another appraisal to loan me the money.  

Jason Wood, Dental Attorney:

Agree that you can buy in to the building at the appraised value of the building when you acquire the practice, that way you push the appraisal out and the bank that will lend you to money for the acquisition would be happy to lend you more on the real estate since it strengthens their position.

Is there any benefit to having the building appraised this early into the associateship?  With the real estate market as bad as it is I would like to capitalize on the depressed market values. 

Tim Lott, Dental CPA

You should keep in mind having it appraised now won't guarantee you that this value will be the price in the future. Put yourself in the seller’s shoes. Historically, after real estate has declined substantially, would you be willing to lock in a price on an asset that's likely to go up in the future?

What you can do is consult with a commercial real estate agent and see what the comps are for similar space so you can get a range of what to expect in terms of real estate value. See if that range matches what the seller is thinking. I don't see any benefit in paying for the appraisal now.

With respect to the practice, I do see the benefit in trying to establish the price now; however, just know that you can appraise the practice as of say 12/31/2011 in 2013 very easily.

Good luck.

Jason Wood, Dental Attorney:

Sure.  Creating the partnership agreement, the purchase agreement, the lease review, etc. would be very expensive to do right now.  You can:

1.  Agree to the purchase price now
2.  Agree to the closing date
3.  Agree to when the parties need to back out before it becomes binding
4.  Agree on stop gap measures to insure compliance after the back out date
5.  Agree on the structure of the partnership
6.  Agree on the building acquisition

All in the associate agreement without having to draft all of the other documents right now.  That way if the deal doesn't go forward, you don't spend the extra money on the details contained in all of those other documents.

Went ahead and attained an appraisal. I'm meeting with the sales broker/CPA to discuss the appraisal. What are some questions to ask him?

Tim Lott, Dental CPA 

It seems to me your questions will be driven by how that meeting goes and the information that gets presented. I don't know what questions I'm going to ask of a seller\broker re: their valuation or asking price until I've seen what they've done, how they did it, the information they used generate their report.

Once you see this you'll be in a better position to know what questions to ask I would think.

Good luck!

This first appeared on Dentaltown.

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

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Bill and Hold or Placed in Service for Dental Equipment

And I go to my equipment sales rep for my tax advice too!

My startup office is under construction and won't be ready for moving in until Feb, 2012. As usual, I have placed my equipment order while I did not pay yet. My equipment guy mentioned to me about the "bill and hold strategy" to take advantage of tax deduction. He said I can have tax deduction from my 2011 income if I pay him this year as "bill and hold", and then install the equipment in the new office in 2012.

Hint: ask the vendor about that section of the code that talks about "placed in service"!

My situation is that I established the entity as PLLC and solo proprietor  this year, however, I am now working as an employee in other office, Basically, I have no income from my new office that is under construction.

First question: Do I need to file my 2011 tax return as a PLLC /solo proprietor? (like schedule C). 

Probably and you might have some deductible expenses, it's also possible that won't have any deductible expenses, just depends on the facts.

My second question: Is it a good idea to take advantage of tax deduction with "bill and hold strategy"?

Of course you assume you can deduct it, which you probably can't UNLESS you've placed it in service in 2011 (see hint above).

If that's the case, then on schedule C, I don't have any income. 

That's not a problem; many start-up businesses that open their doors for business at the end of the year might not have income & plenty of expenses...

Can anyone shed some lights on this? Thank you very much! 

Sure can, BRIGHT lights TOO!

It might be a good idea to speak with your CPA for year-end tax planning....NOT the equipment sales rep.

Thanks Tim! It's always great that you chime in to answer those questions. I talked to my accountant today as well. Basically, he has the same opinion as you do that the equipment has to be in place and function.

You did mention that I may be able to deduct some expense this year. This is a little bit difference from my accountant. I would like to hear your second opinion. I paid attorney fee, architect fee, part of the construction and equipment cost, and bought some computers and small equipment with my own assets so far. Can I deduct those expenses that incurred in 2010 from my income as an employee if I'll file as a solo proprietor? Thank you very much!
Many of those costs may not be deductible yet, however, they might be:

1. If a computer was placed in service this year to begin planning and tracking your progress

2. Mileage to meet with advisors, planners, shop

3. Other minor expenses similar to those that you might incur this year as well.

This first appeared on Dentaltown.

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

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Is There a Tax Deduction for Buying Dental Practice?

I am looking to purchase a practice and the building.  The appraisal on the building is pending, but assuming it seems fair, I will purchase both.  I have been approved for 100% financing for the practice 10 yr. term, 5.95% through Wells-Fargo and am applying at another bank as well to compare.  The building numbers depend on the amount I put down.

I have enough for over 25% down if I need it, but here is where I need help. I have already paid income tax on all the money in my savings that I would be using for the down payment, but the down payment for the building would be a tax deductible expense.  How can I work this where I can make the down payment without using after tax dollars or can I pay myself back the amount I put down for the building without having to pay tax on it (for example, if I put 50K down for the building with my after tax savings, can I later pay myself back 50K from the practice without having to pay tax on that 50K)?

Thanks for any help.  It is greatly appreciated. 

The down payment won't be a deduction; the cost of the building will lend itself to deductions for about 39 years, excluding the land that isn't deductible and a few other costs with different Tax lives.

Does that help?

It seems then tax-wise it would be smartest to put the least amount possible down, since that is after tax money.  However, a larger down payment will lower the interest rate by close to 1%.  Tough decision. 

Yep, tough decision and it's a cash flow/cash use decision as well...

The other thing to consider is how you allocate the price to each component, practice and real estate. Talk to your CPA about which might be more beneficial, higher practice price or higher real estate price and talk to the lenders about how that might impact financing.

Sometimes you can get pretty creative when buying both together under the right situation.

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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