The Top Ten Mistakes Dentists Make Filing Their Taxes

Lance Jacob of the Dental CPAs has compiled a list of the top ten most common tax filing mistakes that he sees his dental clients making. If you don't have a dental CPA, contact Lance.    

 

1.      Filling out tax forms with an incorrect Social Security number. The IRS computers will automatically reject your deductions and credits if your Social Security number is wrong.[i] This mistake seems careless and trivial, but it is paramount to have the right Social Security number when filing your taxes.  Your social security number is your tax ID number, which is linked to numerous transactions such as income statements, savings account interest, and retirement plan contributions. It is also vital to claiming tax credits.   

2.      Double dipping on dependents for divorced taxpayers. Ill repercussions could result such as additional taxes, penalties, and interest charged.[ii]  A child can ultimately meet the rules to be a qualifying child of only one person.[iii] Once divorced, your children do not duplicate out of thin air; therefore they cannot be claimed twice in taxes.  The IRS does not allow both divorced taxpayers to claim a child as a dependent. 

3.      Not reporting non-deductible IRA contributions.  Any contribution to an IRA, whether it is deductible or non-deductible, should be reported on Form 8606, so when you withdraw it you are not taxed on it.  Plain and simple, all contributions to an IRA must be reported.

4.      Incorrectly reported estimated tax payments.  If your accountant instructed you to make quarterly estimated tax payments, be sure to let him or her know the details of the payment for each installment.  Provide the check numbers, dates of payment, and the amount of each payment.  What often happens is people claim they made the payments as their accountant told them, but did not keep any records and inadvertently forgot a payment or two.  If the accountant includes all of the estimated payments on the return when they all were not really made, the IRS or state government will send a notice of tax due with penalties and interest.

5.      Incorrect Federal ID number used on 1099 MISC.  Although your accountant can easily fix this, the less the IRS has to contact you, the better it is. The IRS matches 1099MISC and the Social Security number or Federal Identification number used. If you provide services, and the client you did the work for issues a 1099MISC, be sure they know to use the federal identification number of your business and not your social security number.  If they use the wrong number the IRS will send you a notice that you did not report income on your personal return, when in fact it was reported correctly on your business return.

6.      Exceeding the mortgage interest deduction limit on Mortgage and home equity debt in excess of $1.1million.  This error commonly falls as the fault of both the taxpayer and accountant.  They only deduct the amount reported of the mortgage interest statement, Form 1098, and do not bother to check the amount of mortgage the taxpayer has.  The tax laws limit the amount of deductible interest to the interest on the first $1,000,000 of home mortgage debt and $100,000 of home equity debt[iv].  So if you have a mortgage of $2 million, you can only deduct mortgage interest related to the first $1.1 million in total debt.   

7.      Standard mileage vs. actual expenses.  Mistakes in this area come from inconsistent use of methods.  If your car is for business purposes only, then the entire cost of its operation can be deducted.  However, if the car is used for both business and personal use, only the cost of its business use can be deducted. The amount of your deductible car expense can be found using either the standard mileage rate method or the actual expense method. [v]  Some people will qualify for both methods but you must choose only one method when you start using the vehicle and continue with that method until you replace the vehicle.  Be sure to figure your deduction with both methods initially to see which gives you the larger of the deductions.

8.      First-Time Homebuyer Credit recipients unaware of the fine print.  Those who received a First-Time Homebuyers’ Credit towards their purchase of a home settled on prior to 12/31/08 must begin repaying that money on 2010 tax returns. Now is the time to take a good hard look at the details of this credit. Many who accepted the $7,500 credit may not realize that it was in fact a loan, and the government will begin not-so-politely asking for the money back over the course of the next 15 years starting with 2010 individual tax returns. As with any federal money however, there is a lot of fine print to read into on this one.[vi]

9.      Forgetting to tell your tax preparer you took an early distribution on an IRA; therefore, failing to calculate the early distribution penalty of 10%.  If you are under the age of 59.5, a distribution on an IRA (including employer matching and profit sharing) is considered early, and subject to a 10% additional tax.  This tax is in addition of other taxes that apply to the distribution.[vii]

10.  Forgetting your signature on your return! If you were an artist, you wouldn’t forget to sign your masterpiece upon its completion, would you? You must sign your taxes for the IRS to process your taxes.  Filing your taxes electronically is a foolproof way to ensure your taxes will not go unsigned.  These software packages do not allow documents to be sent unless every step is completed. 

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[i] http://www.walletpop.com/taxes/most-common-taxpayer-mistakes/

[ii] http://taxes.about.com/od/dependents/a/Dependents.htm

[iii] http://www.irs.gov/individuals/article/0,,id=218767,00.html

[iv] http://www.irs.gov/publications/p936/ar02.html

[v] http://www.irs.gov/taxtopics/tc510.html

[vi] http://money.cnn.com/2009/09/24/pf/expert/home_buyer_credit.moneymag/index.htm

[vii] http://www.irs.gov/faqs/faq/0,,id=199762,00.html

You can contact Lance Jacob with additional questions or comments at ljacob@dentalcpas.com or (800) 772-1065. www.dentalcpas.com

For more information, please contact info@dentalcpas.com

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Dentist Has Questions about an Audit

I'm trying to limit the amount of paperwork and receipts stashed on my attic.

So I am wondering - what happens during an audit?

Say, a typical dental office gets audited.

I don't know, what's an average now, $750K - 1M Gross, 55-65% overhead.

An audit letter comes.

What do they want?

Is there going to be an auditor coming in, or is by mail?

Do they want to look at specific categories, like meals, cars, entertainment, or is across the board?

If your supplies, labs, etc, are at reasonable percentages, do they want to examine those?

If they want to look inside your supplies or labs category, is a charge on credit card statement enough, or do they want actual invoices?

Like, if it says "Schein" or "Staples" or "Joe's Dental Lab", is that enough to convince the auditor it's a legit expense, or do they sift through the Staples or Schein invoices to make sure there weren't extra #2 pencils ordered for the home use?

I guess what I am asking, is it enough to keep only credit card and bank statements for typical purchases, or should we keep every invoice and statement?

It depends....I’ll knock on some wood before I share this....done knocking:

I’ve had 5 clients audited in the last 12-24 months, all on schedule C's. 3 were no changes and one of the 3 was a really aggressive taxpayer though their documentation was EXCELLENT. When I say aggressive I mean some business % of 4-5 cars, most expensive cars, one a Rolls Royce, not to mention a boat, several homes, etc... Again, the DOCUMENTATION was excellent... no change.

I just received a no change, letter on one where the agent had been out FOUR times and hadn't made it past revenue yet, they were scheduled to come out last week for a 5th & 6th day. I wrote a letter to the agent two weeks prior with tome supporting evidence documenting certain revenue they couldn't trace from the previous 4 visits (that's FOUR FULL DAYS) and my letter basically said look, you've been out 4 times and haven't gotten past revenue yet, each time I've had the expense category receipts ready for your review that you've asked for and you still haven't seen them. It's getting to the point of harassment and you're simply running up the taxpayer’s professional fees. I suggest you close the case with a no change letter as every other audit I've had with two agents have been out at most, TWICE. So talk to your supervisor and let me know. The day before he was scheduled to come out again he called me at 5:30 in the evening. He was surprised to find me at work answering the phone. He told me they were sending me a no change letter.

DOCUMENTATION is the key. If you keep good records and good documentation you'll be fine.

The main thing to remember is have your CPA handle the audit, don’t agree to go to the IRS office to meet with the agent no matter how friendly the request seems (I had a client learn this the hard way). As soon as you are contacted by the IRS (or any taxing agency) let them know your CPA will be handling all future correspondence, requests for information, and meetings. The CPA should schedule the audit to be done by mail or at the CPAs office. If you do have to answer questions for the agent, answer only the question asked.

I need a new car, and I need a deduction to limit my tax liability in 2012.  My advisor suggested the section 179 auto deduction to accomplish both.  I have a fairly long commute and am wondering how to make my commute a business use of the vehicle.  If I have a bank right by my house and make my nightly deposits there, will that fly with the IRS (even though there is a bank close to my office).  

My wife is on the payroll and pays the bills and orders supplies at home.  2 of my children are also on payroll and do some of their jobs at home (shredding documents, stuffing take home bags, etc…) I am still leery of the whole home office thing.

Any thoughts? 

Keep in mind the amount you can write off for a vehicle under 6,000 pounds is not going to change your tax liability all that much since depreciation on those vehicles is limited. If the vehicle is 6,000 lbs. or more (gross vehicle weight some SUVs) then you may be able to maximize your tax deduction (Section 179). The key to taking the deduction is to keep good documentation (on business usage). Above all don’t buy a car (or any asset) just for the tax deduction.

These are individualized issues and decisions. If your CPA suggested buying a car for tax reasons then you should be asking them how you go about getting the most out of that vehicle (or vehicles) and running your ideas by them. If they suggested the vehicle as a way to get business deductions they must also have some thoughts on how your vehicle(s) are used for business.

Why couldn't I just purchase the vehicle and get the loan in the business name?  That way, the car is an asset of the business and I only get to use it as the officer of the business.  I wouldn't see this as any different than someone driving a "company car".  

I bought both mine and my wife's vehicles in the business name.... we don't own the cars, the Corp owns them.  This allows auto insurance, gas, maintenance, etc. to all be deducted as well.

Any reason not to do this?

 Many times owners might want to pass their old corp car to a family member then you’re dealing with getting it out of the corp and here in Maryland, it'll cost you sales tax to do so. I've also been told auto insurance on a corp owned vehicle is more expensive than on a personal vehicle.

This first appeared on Dentaltown.

For more information, please contact info@dentalcpas.com

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How Does an Associate Dentist Deduct CE Course Cost?

I am a W-2 employee looking to do some CE courses which will likely run an excess of 2000 dollars this year.  I had read in a previous post that there is a ceiling of some sort to the deduction as an employee which is 2% of AGI.

So if I want to take a few of these CE courses which my employer will not pay for.  How should I go about documentation/setting things up to write off if possible?  One of the courses would require being out of state for a few days, an airplane trip and of course the course itself.  I know being an IC in this case would be best but what can one do otherwise?

Thank you.

When you say your employer won't pay for it, do you mean they won't pay for it in addition to your wages? If that's the case, will they pay for it and reduce your wages by the amount they pay? If they do that it's a win/win for both of you as they'll save payroll taxes as well. If they won't do that, then:

Total all of your unreimbursed employee business expenses including the cost of this CE and you may be able to deduct the amount that exceeds 2% of your AGI - IF you are able to itemize deductions on your tax return.

All related expenses in taking the course will likely be deductible such as travel, meals, taxis, tips, lodging, etc.

Try to get your employer to pay it though in lieu of wages, that's your best bet.

How do you document costs for taxi, meals, tips etc.  Newbie here - Just hold on the direct receipts I guess?  What if you drive yourself to another state - save the gas receipt?

Receipts are always best and simply log the miles. If you can't get a receipt for a cash expense, note it on a sheet of paper where you're summarizing the trip and its purpose and it should suffice under audit as long as it's a reasonable amount.

This first appeared on Dentaltown.

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Preparing your Dental Practice Promotion for the First Quarter of 2013

Here is a guest blog from our friends at New Patients Incorporated (NPI).

Hit 'em hard in January (and February, and March)! Whether it's the internet, mail, print, radio, TV, or almost any other media choice, best case scenario is to get your impressions on the street between the end of the first week of January to the third week in January. Stay consistent from that point forward, each month, well into next year. There are several reasons why this makes statistical sense. Historical data  tells us so. The first reason is pent up demand from consumers NOT making choices on a new dental practice from November 15th through New Year's Day. That is just pure math. Add to that the social pressure of wanting to improve something about yourself at the turn of every new year. For some people it is about losing weight. For some people it might be a new wardrobe. For some people it might mean working less and taking more time for themselves. And yes, a certain number of people are going to finally give their smile the attention it deserves. We don't know how many people feel that way, we just know the number is greater than zero. This coming year, you also have to add on the end of the consumer election malaise that hits all markets. Yes, consumer spending slows in the quarter leading up to a presidential election. It's been happening for decades. This last election was no exception. In January, the election drama will fade in consumers' minds and more people will get back to paying attention to what has always mattered most - themselves! 

Another reason 2013 looks very much like a rebound year, is the pent up demand from the last four years! Sure the recession has hit dentistry. Of course it did. But what happens to neglected teeth after four years? Sooner or later, people that put dentistry off, are going to need a bunch of dentistry! For all of these reasons, January, February, and March 2013 are stacking up to be pretty good bets! So is the rest of 2013.

If you are trying a new medium in 2013 - start it in January

Some of you don't need to expand into alternate media to generate more new patient flow. You are at or exceeding your capacity now and your promotions are working well. But, for those of you who are expanding your promotion in 2013 - don't wait to pull the trigger! Deploy starting in January! For all of the reasons stated above, start with a new promotion project in the first quarter of 2013. 

You (statistically) will have the best chance of that new media paying off during this time frame. Using a new promotion medium can be scary. It can be scary because you don't know if it is going to work or not. Start it and track it when it has the best chance of being successful. We have seen many promotions lag in response during the first two to three months, only to build momentum further down the road and become wonderfully consistent producers of new patients.  

The 1st quarter of 2013 is going to be a great time to test a new promotion medium in your marketplace.

If you haven't already - commit to using tracking numbers in 2013

If you open and actually read these newsletters, you might be getting a bit tired of us talking about the use of remote call forwarding telephone numbers embedded into your promotions. If you are a client and already use them, well, you already know how beneficial they are.

For those of you not familiar with call tracking numbers, now is definitely the time to attach them to your 2013 external promotions. Use them on any promotion that consumes more than 10% of your annual budget.

Your promotion generates the call, your team interacts with a potential new patient, and the caller either becomes a new patient - or not. As the CEO of your dental practice, the remote call forwarding website (where all of your calls are recorded and reported) becomes a CEO Control Center. We have been working with dentists for 25 years now. We know how demanding being a dentist is or can be at times. 

We know you just want to go home and forget about the office for a while. We know you don't want to sift through piles and piles of reports to figure out how your promotions are doing. We also know the last thing you want is more stress. Stress is caused by uncertainty. Uncertainty stinks!

But that's the beauty of remote call forwarding/tracking - it easily removes uncertainty! Go home after a long day at the practice. After you relax and unwind a bit, go ahead and log into your online call tracking account. See how many calls came from each of your promotions. Listen to a few phone call interactions between potential new patients and your staff. Look at how many potential new patients called during hours with no human phone coverage. Just simply being aware of what is going on with all of your promotion and the interaction between prospective new patient and your team give you (the CEO) complete control. Awareness destroys uncertainty. Awareness allows you to make properly informed decisions. Being aware reduces stress. Marketing isn't supposed to be stressful. It is supposed to be fun!

Happy Holidays to you and yours!

From all of us here at New Patients, Inc. we want to wish everyone, a healthy, happy, and warm holiday season.

If any of you need us between now and 2013, just call 866.336.8237. We will be here for you.

As always, if we (NPI) don't handle your promotion for you, you can learn the most effective ways in our latest book. We also have 7 hours of online CE for you to learn from. Of course, if you'd like us to build you a marketing plan for your practice, at no cost or obligation to you, we can do that as well. Just click this link and share information about your dental practice. You will get your marketing plan emailed to you in 4 to 5 work days.

Got questions? Want to learn more?  

You can reach Mark & Howie at:

Howie: whh@newpatientsinc.com

Mark: markd@newpatientsinc.com

  

For more information, please contact info@dentalcpas.com

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What Should Dentist Pay Periodontist?

I am planning on bringing a periodontist.  I am going to pay him a percentage of production, but he asked me about a per diem on the days that he is only doing follow-ups and new exams.  What is the going rate for a specialist coming into a GP office?

Thanks.

1. I would think follow-ups would be covered under the procedure fee, so no additional compensation for that in my opinion unless there's a procedure code you can charge.

2. Isn't there a charge for new exams? If so, that'll get included in the monthly production and you should be basing your calculations on no more frequently than monthly.

Good luck

This first appeared on Dentaltown.

For more information, please contact info@dentalcpas.com

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Grow Your Dental Practice in the Upcoming Year with a Business Plan

Below is a guest post from our friends at ETS Dental, be sure to contact them for all of your dental recruiting needs. 

The theme of my articles around this time of year always revolves around planning and goal setting.  Like it or not, we are just 60 days away from the end of 2012.  It’s in the books, and that’s all she wrote…

Practice owners: If you don’t set time aside to write out your business plan or set your personal goals by November 15 it’s probably not going to happen this year.  Thanksgiving is just a few weeks away, followed by Christmas, Hanukkah, and New Years.

Associates and practice owners: Set your personal goals for 2013 by November 15. Whether it is improving your clinical skills, planning for retirement or your kid’s college, or getting back in shape, the time to set your 2013 goals is NOW!

Hundreds, possibly thousands, of articles, books, and blogs have been written about the importance or writing a business plan and setting personal goals.  I’d like to share a few of my favorites:

Eleven reasons to write a business plan:

1. Achieve your long-term goals by developing a road map that details specific short-term goals and milestones.

2. Prove to associates, employees, family members, and bankers that you’re serious about growing your practice.  It allows them to see where they fit.

3. Share your strategy, your priorities, and your plan of action with those who will hold you accountable, such as associates, employees, your spouse, and business advisors.

4. Determine when you will have to say “no.”  There is no shortage of good ideas.  Each year it’s better to pick a few and execute them well, rather than saying yes to everything and not giving any of the ideas the effort they deserve.

5. Understand your patients, your competition, and your opportunities better in order to grow.  Writing a business plan forces you to do research on your market and the needs of your patients.

6. Make your practice more attractive to potential buyers-- five, ten, or twenty years from now.

7. Making a plan gives you a reason to stop doing things in your practice that don’t make sense anymore (or never made sense in the first place).

8. A plan determines your financial needs.

9. It allows you to assess new revenue opportunities as well as rejuvenate old ones.

10. It also gives you a chance to make mistakes on paper, or to prevent you from repeating those mistakes that you’ve already made.

11. Establishing daily and weekly goals simply makes it more fun and rewarding to come to work in the morning.

If you have never written a business plan before, you will find the following article helpful:

8 Simple Steps to Preparing a Business Plan for 2012

Twelve reasons to write down your personal goals.  (Today!)

1. Writing transforms your goals from thoughts to tangible objectives.  Once goals are written, they are easy to remember, track, and accomplish.

2. Great minds have purposes, others have wishes. (Washington Irving)

3. First you write down your goal; your second job is to break down your goal into a series of steps, beginning with steps which are absurdly easy. (Fitzhugh Dodson)

4. One worthwhile task carried to a successful conclusion is better than half-a hundred half-finished tasks. (B.C. Forbes)

5. All you have to do is know where you’re going. The answers will come to you of their own accord. (Earl Nightingale)

6. A goal is a dream with a deadline. (Napoleon Hill)

7. Goals allow you to control the direction of change in your favor. (Brian Tracy)

8. You cannot expect to achieve new goals or move beyond your present circumstances unless you change. (Les Brown)

9. A man without a goal is like a ship without a rudder. (Thomas Carlyle)

10. The path of least resistance is the path of a loser. (Phil Weltman)

11. Give me a stock clerk with a goal and I’ll give you a man who will make history. Give me a man with no goals and I’ll give you a stock clerk. (J.C. Penney)

12. You must have long term goals to keep you from being frustrated by short term failures. (Charles C. Noble). 

Written by Mark Kennedy, Owner/Managing Director of Executive Talent Search (ETS Dental, ETS Vision, ETS Tech-Ops). To find out more, call ETS Dental at (540) 563-1688, visit us online at www.etsdental.com or email Mark.

For more information, please contact info@dentalcpas.com

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