Forgotten Tax Deductions

It’s estimated that most dental practices overpay their taxes. We don’t want yours to be one of them!

There are several deductions where your dental practice could be saving money on taxes, even on everyday expenses. Two words to keep in mind when claiming dental tax deductions: ordinary and necessary. Both conditions must apply for the expense to be tax deductible.

Read below for eight dental tax deductions to keep more money in your practice. 

Some tax deductions you’re probably already aware of, like premiums for malpractice insurance or the 50 percent deduction for meals and entertainment.

 Talk to your tax advisor to see what applies in your situation.

Supplies

Everything from toothbrushes to cotton balls to dental eyewear can and should be tracked – and deducted. This includes office stationery and administrative supplies.

Lab Fees

Lab fees can be 10 percent or more of your practice’s budget, so make them count on your taxes. Think x-rays, crowns, partials, molds, and dentures. Keep track of these fees for tax savings.

Continuing Education

Even if you don’t consider yourself a lifelong learner, your office’s yearly subscription to a dental industry magazine could be tax deductible. So could your costs and fees associated with exams, licensing, conferences, and certifications. Go ahead and pursue that specialty!

Vehicles

There are three ways to deduct vehicle expenses: 1) buy the vehicle through your dental practice (if your business structure is a corporation), and include personal vehicle expenses as income on your individual tax return 2) track mileage expenses or 3) track actual expenses.

Number one is complicated and merits a call to your tax advisor. The current mileage rate is 53.5 cents per mile for 2017 (54 cents per mile for 2016). Or, to track actual expenses, keep a log of oil changes, repairs and maintenance, gas, and so on. Note that ordinary trips to and from your office don’t apply for standard mileage rates, but trips to other offices or business meetings do.

Utilities

Keep a record of your dental practice’s water, electric, gas, phone, internet, rent and/or mortgage payments.

Employee salaries, healthcare, and retirement accounts

You probably already know you can deduct the employer’s contributions to retirement and healthcare accounts. But you might not be aware of the recent change allowing employer-funded health savings accounts, or that your spouse can earn a salary that can also save money on taxes (there are many ways to do this; call our office for more information).

Read our blog post on Tax Savings for Dentists for more information.

Advertising and marketing

The cost of promoting your dental practice is tax deductible. So take out that ad in the local business journal, and send those mailers. Then include the fees on your taxes.

Legal and Tax Fees

Finally, you can deduct the cost of your attorney and tax professional. We can show you how – contact us today!

Tech Practice Investments

The modern dental practice is an efficient, patient-centered experience that seamlessly integrates technology into everyday processes and procedures. Does this sound like your dental office? Even if you answered yes, read on for suggestions on the best technology to invest in for a more productive, profitable dental practice – and how to make your equipment wish list a reality with bonus depreciation.

CAD/CAM Technology

If your dental practice doesn’t yet have a CAD/CAM system, now is the time to consider it. CAD/CAM, or computer-aided design and computer aided manufacturing, is a digital process that improves the design and creation of crowns, dental implants, dentures, and more. Since these systems can cost upwards of $100,000, it’s an investment that requires significant thought and careful planning.

3D Printing

Going hand in hand with CAD/CAM systems, 3D printing will allow you to produce your own custom orthodontics, implants, and restorations in the office. There are printers specific to orthodontics, general dentistry, and dental surgery, each with their own specifications. The cost of 3D printers varies and will generally be less than $5,000.

Practice Management Software

There are many options for practice management software. The best software solutions will mirror your workflow and automate key processes. Costs vary from a few hundred dollars for the set-up of a cloud-based software program for a small office to $15,000 and above for locally hosted software programs and/or larger offices.

Keep In Mind: Certain types of software may not be eligible for depreciation. Contact our office for details.

Purchasing one 3D printer should be fairly easy for most practices. After all, most corporate credit cards or lines of credit have a limit higher than $5,000. What if you’re looking at purchasing more than one 3D printer, investing in a custom software package, or buying a CAD/CAM system? Assuming you don’t have a large cash reserve or high credit line, what are your options for adding this technology to your dental practice?
The solution is bonus depreciation.  2017 is the last year for 50 percent bonus depreciation; the value decreases in 2018. As of now, bonus depreciation is set to expire in 2019.

What Is Bonus Depreciation?

When you make capital upgrades to equipment or property, you can recover the cost of those upgrades through an annual tax deduction called depreciation. Most tangible property can be included, such as office furniture, computers, vehicles, and – you guessed it – CAD/CAM systems, 3D printers, and computer software.

What’s Not Included

Although you can include many capital improvements in bonus depreciation, you cannot include the following:

• Land
• Property with a useful life of less than one year
• Property that is disposed of the same year you purchased it
• Personal property

How It Works

Typically, the cost of a capital upgrade is depreciated over the course of its useful life – generally, five years or more. But for equipment or property placed into service in 2016 and 2017, bonus depreciation allows for an immediate 50 percent deduction the first year. In 2018 and 2019, the benefit decreases to 40 percent, and – as of now – bonus depreciation will expire after 2019.

Depreciation allows you to recover the cost of normal wear and tear over the life of, say, your office’s dental chairs. An oversimplified example is if you purchased three new dental chairs in 2016 for $3,000 each. Instead of spreading that cost over seven years, if you bought the new chairs in 2016, you could deduct 50 percent of the basis – the amount you paid for the chairs – the year you placed the chairs into service, which was 2016. If you bought the chairs in 2016 but didn’t install them until 2017, then the useful life begins in 2017, the year you placed the chairs into service.

The benefit is that you get more money back quicker. See our example below.

Calculating Depreciation

To calculate depreciation, you’ll need the total amount you paid, the year the equipment was placed into service, and the equipment’s salvage value – how much it’ll be worth at the end of its useful life. Subtract the salvage value from the total amount paid. This is the amount you can depreciate over the equipment’s useful life.

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Example:
You purchase a new CAD/CAM system in 2016 for $100,000 and it has a useful life of seven years. You determine its salvage value to be $20,000. The difference is $80,000. You can deduct $80,000 in depreciation over seven years.

Purchase Price: $100,000

Useful Life: 7 years

Salvage Value: $20,000

100,000 – 20,000 = 80,000

80,000 / 7 years = $11,428 yearly depreciation deduction

Each year for seven years, you could deduct more than $11,000. But if you use bonus depreciation, you could deduct $40,000 in Year 1 and about $6,600 for each of the remaining six years.

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Depreciation terms vary based on the equipment. Note that while you can depreciate the cost of improvements to land, you cannot depreciate land itself. Calculating depreciation is more complex than the simplistic example we provided above. You should consult with a tax professional to review your specific situation.

Next Steps

If you’ve been thinking about making technology or other upgrades to your dental office, 2017 is the last year to take advantage of 50 percent bonus depreciation. Consider your goals for your practice and how you want to improve the patient experience. Then, contact us to go over your options. We can assess the tax implications of any new office upgrade and help you get the most out of your investment.

Practice Sellers - How to Maintain Practice Value Before a Sale

During my many buyer representation engagements I tend to see some common issues when it comes to practice valuations that sellers could have avoided to help maintain their practice values. Here are some of those areas. 

1.     Clean Record Keeping: 

Remember, buyers and their advisors will be picking over your information, it’s like inviting someone into your home, and you want it to be clean. Your practice books and records should be the same way, clean, easy to read, and at your finger tips. For example, your Quickbooks file should match the tax return numbers and if not to the dollar, pretty darn close and easy to match up. 

2.     Complete and Accurate Practice Management (PM) Reporting: 

Make sure your PM software is current and accurate. You should be recording production, adjustments and collections by provider. Clean up your accounts receivables WELL before you plan on selling.  

3.     Don’t Coast: 

This is one of the worst things a seller can do prior to selling their practice. It decreases dentistry production and therefore, decreases practice revenue which buyers AND bankers do NOT like. 

4.     Don’t Reduce Your Hygiene Hours: 

Let me correct myself, THIS is the worst thing you can do. Not only are you reducing your practice revenue, you’re potentially losing patients as well. 

5.     Update Office Appearance and Equipment:  

Again, just like a house, an outdated décor with old equipment will generally create less excitement with a buyer and less excitement means a reduced offer. Create excitement with your buyers with current décor, updated equipment and a fresh appearance. 

6.     Overpaid Staff: 

Be aware of your staff compensation and make an effort to make sure it stays within “market” for your area. There’s nothing wrong with showing appreciation to your staff with discretionary bonuses, fancy trips, paying for CE travel, etc., however, make sure they’re aware that these are not customary fringes so they don’t come to expect it from their new boss. 

7.     Inflated Overhead: 

Well before you sell, I’m talking 2-3 years ahead of time, begin to evaluate your practice overhead expenses and make sure you’re ONLY spending on things you NEED. I’m not talking about skimping on updated equipment; I’m talking about wasting money on unnecessary supplies, small toys, unnecessary services, etc. Become a good CFO! Profits will drive value most of the time and wasted overhead eats into your profit and will usually drive down the value of the practice. 

8.     Office Policies and Systems: 

Well before you sell, make sure you have excellent operating systems and policies. If you’re not collecting a patient’s portion of the fee at the time of visit, make that change now. If you don’t take credit cards, start taking them. If you’re not running daily, weekly and monthly management reports, start doing so.  

9.     Track Your Referrals: 

At least one year prior to a sale, begin tracking the procedures you refer out every day and be prepared to provide your broker with some really good, accurate information for the prospective buyers. 

10. Dont’t Change or Eliminate any PPOs Prior to a Sale: 

This can backfire if you begin to see fewer patients even if the revenue stays about the same. In most cases when a practice decides to eliminate PPOs, there’s a transition period where you’ll have holes in the schedule.  Those PPO patients that opt NOT to come back for their scheduled recare appointment or follow-up work will in turn cause revenues to be lower for a period of time.  

Tim Lott, CPA, CVA has decades of experiences working with dentists at all stages of their careers. He is a regular speaker at study clubs, societies, and dental schools. Tim is a partner at Naden/Lean, of which the Dental CPAs is a division. You can reach Tim at tlott@dentalcpas.comor (800) 772-1065.  

2015 PRACTICE FINANCIAL STATS COMMENTARY – WHAT’S CHANGED FROM FIVE YEARS AGO?

We’ve completed the process of compiling our dental practice financial statistics based upon 2014 & 2015 data and the results show very little change compared to five years ago.

Remember, the US economy went through a downturn beginning in late 2008 which lasted probably through the majority of 2012. Therefore, the 2010 results included some of those down years and compared to 2005 we saw some interesting changes, likely due to that downturn. However, many practices began to rebound sometime in 2012, and we saw significant upticks in some practices in 2013, 2014, & 2015. We were curious to see how this would impact the financial statistics for dental practices.

We also know that over the past five years there’s been even more technology that practices are buying and using whether it’s their dental equipment, office equipment, computers, software, and even outside service providers (to handle calls, etc.). While we were a little surprised to see that overall, the changes were minor, we’ve summarized our findings below and provide commentary as to why we think some changes occurred.

     1.     Revenue:

The mix of dentistry to hygiene production has increased slightly in favor of the doctor, with a ratio of 3.1:1 as opposed to 3:1 five years ago. We expected the ratio to be even higher with practices adding implants, invisalign, other ortho, sleep dentistry, etc., however, we didn’t see a big increase.

The surprising statistic is the adjustments or write-offs. Five years ago the “average” practice was writing off 19% of their gross production, and it’s decreased to 14.4%. With all the talk about everyone joining PPOs, especially with the downturn years, we expected that to increase. That said, we’ve also seen an increase in the number of practices that have been maturing and attempting to reduce their PPO participation. Many practices have implemented in-house membership plans to battle the PPO participation urge. In-house membership plans will show a write-off percentage in the 10% neighborhood. It’s also possible and likely that more practices are opting to report their GROSS production based on their PPO reimbursements instead of the UCRs…that’s unfortunate.

We also see a positive increase in the ratio of hygiene production to hygiene wages of 3:1, up from 2.7:1 back in 2010. This increase is likely to the impact on hygiene wages that were forced down in many parts of the country due to the economy and practices doing a better job of making sure their hygiene departments are operating as efficiently and productively as possible.

      2.     Labor:

There wasn’t much of a change overall. If anything, we saw the lower end of the total labor cost range dip down to 25% and as high as 29% In some cases.  The average is still around 27%, and that includes wages, payroll taxes, retirement plans and other benefits. Hygiene remains around 8-10%. However, assistants actually came down a little on the top end, from 9% to 8% while front desk wages bumped up on the lower from 5% to 6%.

     3.     Facility Expenses:

There was no change in the facility costs and rent expenses. They both remained similar to 2010, 6-7% overall facility costs and 5-6% for rent expense.

     4.     Lab and Dental Supply Expenses:

These categories are beginning to show the changes in technology and additional procedure offerings. Whether it’s the use of CADCAM equipment or adding implants to the procedure mix, we think we’re seeing the changes. Dental supplies were at 4-7% back in 2010, and we’re seeing them around 6-8%, again, the cost of implants, maybe some milling supplies and even some practices doing more endo. Lab was 5-8% back in 2010, and the top end has dropped down to 7%. Practices manufacturing their own crowns will see the drop in lab and practices doing larger cases without a milling machine could see their lab hit 10-12%.

     5.     Other Costs:

In total, other costs went from 8.8% in 2010 to around 10% in 2015, a slight increase of 1.2%. We see an uptick in advertising and marketing to 2% on average, up from around 1.5% and 1.5% for collection expenses, like carecredit and merchant services, up from around 1.2% back in 2010. We also see more use of outside service providers like call centers, providers offering in-house membership, patient reminder systems, website SEO services, etc. which is likely driving the increase in some of these other expenses.

In summary, total overhead went from 48.8% in 2010 to around 51% in 2015. Keep in mind, this is based on gross production, we also provide the stats based on net collections for those practices that record their production based on PPO fees, NOT their UCR fees.

So overall I’d say the changes from five years ago have been nominal, yet there are a few areas like revenue, production, and clinical costs that are showing signs of “changing with the times” and for the better no doubt.

CLICK HERE FOR THE 2014-2015 GP Dental Practice Financial Survey Results

Tim Lott, CPA, CVA has decades of experience working with dentists at all stages of their careers. He is a regular speaker at study clubs, societies, and dental schools. Tim is a frequent participant and a moderator on Dentaltown.com. You can reach Tim at tlott@dentalcpas.com or any of the other dental partners/principals at (800) 772-1065 or info@dentalcpas.com 

Buyer of A/R Beware

About a year ago we were engaged to represent a buyer in their efforts to purchase a dental practice. The transaction went fairly smooth and it was one of those engagements where the client wanted to try & handle much of the transaction themselves…or at least as much as they felt comfortable with.

As the settlement day approached, the seller of the practice suggested that the buyer purchase the A/R (unbeknownst to us) and they even agreed on what seemed to be a generous allocation, 0-30, 90%, 30-60, 75%, 60-90, 60%, 0% older than 90 days. On the day of settlement the seller did what they normally do, generate a current A/R report, less patient credits so the parties could do the math and make that part of their settlement.

Things seemed to be going ok for the first 30 days or so, then the buyer started to notice a couple of things. EOBs were arriving with amounts MUCH lower than what the A/R balances were showing and in some cases the EOBs showed services dates much older than what was reported in the various aged buckets.

Here’s what the buyer learned over a period of time -  A) the seller was posting the charges WITHOUT posting the appropriate PPO/Insurance adjustments or at least an estimate of what the PPO/Insurance should have been and B) the software they were using retained any insurance A/R as a 0-30 balance even after 30 days.

So not only did the buyer pay 90% of inflated 0-30 balances because the PPO/insurance adjustments weren’t made, if there were any rejected claims that weren’t handled within 30 days those balances remained in the 0-30 bucket and the buyer overpaid for those balances as well. In the latter case they got hit twice as hard because not only would they have paid less than 90% on those older insurance balances, they also WAY overpaid on those balances because the adjustments weren’t made as well.

As a buyer if you’re going to purchase A/R, make sure you do your due diligence. Make sure all credits are removed, make sure the buckets are aged by date of service, make sure balances have been adjusted for actual or estimated PPO/insurance adjustments.

We’ve seen situations where a software will take a 6-month-old balance and included it in the 0-30 day bucket because the software starts the aging at 0 days whenever an invoice is issued, even when the date of service is 6 months old !

-The DentalCPAs Team

For additional information and/or questions specific to your practice,contact one of our Dental CPA team members at 844-DENT CPA or info@dentalcpas.com.

What’s Most Important To You When Looking To Purchase A Practice ? Part IV

This is part four of my five part blog on “What’s most important to YOU when looking to purchase a practice ? In case you missed part I-III, there’s a great thread on www.dentaltown.com asking this question and it got a lot of great feedback from people with different perspectives. As a reminder, I won’t be telling what SHOULD be important to you, that’s for each doctor do decide and prioritize for themselves. I’m just giving you some food for thought as you contemplate purchasing a practice.

Part I and II revolved around the revenue and expense portion of the practices cash flow and assessing the asking price and practice performance while part III addressed the people issues related to a practice purchase.

In part IV we’ll address the location and facilities aspect of a practice you’re looking to purchase.

Likely the most important part of the “location and facilities” aspect of the purchase is the demographics of the area followed by the actual location of the space. So what does that mean ?

When we talk about the demographics of the area of the practice we’re wondering if the area is a good area to maintain a dental practice. What’s the competition like ? Is it saturated with other dentists ? Is it a growing area for the foreseeable future ? Or is it a declining area where people (potential patients) are leaving & moving away ? What about the patient demographics ? Is it mainly white or blue collar ? What about the average annual household income ? What about the age demographics ? Is it primarily a retirement type community ? Or an area with younger families ? Is it an area you’re going to live in ? Do you want to practice in the same area you live in ? These are some of the demographics questions you need to learn about when you’re looking at a practice purchase and there are companies that specialize in compiling demographic reports for prospective buyers.

Then we move to the specific location of the practice. Is it right on the street, maybe a main street with a ton of vehicle traffic ? Or maybe in or next to a popular strip mall or shopping center with a ton of foot traffic ? Or, is it “off” the road, maybe tucked back behind several buildings with no vehicle or foot traffic visibility ? Is it in a medical\dental complex with other medical\dental professionals ? These are issues that will likely determine how accessible you are or how easy you are to find. Signage also comes into play here. The actual space itself may not be as visible as you’d like, however, maybe you have great signage that fronts a heavily traveled road OR maybe you’re on a heavily travelled road among a lot of other businesses but due to signage restrictions the space isn’t easily identifiable as a dental office ? These are issues that a prospective buyer needs to consider when they are looking at a practice and during the office visit.

What about the specific space? Has it been kept in great condition or is it run down?  Is it an older building that may require a lot of repairs and maintenance or a newer building that may not be high maintenance? How’s the square footage ? Does it fit your needs ? If not, will the space allow for expansion if the practice grows ? Do you see yourself in this space for at least 15+ years ?

You also need to know if the space is leased or owned. If the space is leased you’ll want to get a copy of the lease agreement and have your attorney and\or lease negotiator review it to see if it’ll be a roadblock to buying the practice. If it’s owned by the seller you’ll want to know if the real estate is for sale & if not, when would it be available. If it is owned by the seller and they’re not ready to sell you’ll need to address the lease issues as well AND make sure you’re fully protected under the lease since the landlord is also the owner of the dental practice. The last thing you want are lease default provisions that make it easy for the landlord to throw you out and regain the dental practice. If the space is for sale you’ll have to decide IF you want to buy it at the same time as you buy the practice. If not, you’ll want provisions in the agreements that give you certain rights so you can own the property if & when you want.

Now we move inside the space. We talked about the “building” but what about what’s inside? How many operatories are there? Are there enough ? How’s the actual space, is it large enough? What about the layout ? Does it have\allow good patient flow throughout the space? How’s the technology? Is it current or outdated? What about the dental equipment? Is it brand new, almost new, mostly old, or so old it needs immediate replacement? What about the furniture and décor? Is it “fresh” or is it from the 1970s with old, dark wood paneling?

You may need more than one office visit to know all you need to know about the space as one of those office visits will likely be to do a chart review\audit which can take some time. One thing we recommend is when you do visit the office and if you do visit it more than once, you should take to opportunity to video tape\record your office tour and replay it several times to make sure you know all there is to know about the space, furniture, equipment and décor.

Lastly, you’ll want to understand the office hours that are currently in use and whether or not you can increase office hours based upon the community. For example, if you’re in the middle of a city where most of the “population” is there only from 9-5, Monday thru Fridays, then expanding into evening or weekend hours may not be beneficial. However, if you’re in a more rural area, maybe around schools, early morning, evening and weekend hours may be more valuable to you than the middle of the day hours. You’ll have to decide what you want now and in the future.

Many prospective buyers initially overlook the importance of the space, location and area and start out focusing on the financials of the practice. Instead, it may make sense to understand the area first, then when you’ve identified practices for sale in the area, do a drive by of the specific location and get some firsthand knowledge of where it is and what it looks like form the outside. If that all checks out then it may make sense to gather specific practice information to continue your pursuit of possible ownership.

Part V of this series, the last part will focus on some of the other issues that prospective buyers may find important about buying a dental practice.

 Written by Tim Lott, CPA, CVA

Send your questions to tlott@dentalcpas.com

For more information on our services, please feel free to contact one of the members of the Dental CPA team by calling or emailing info@dentalcpas.com.

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QuickBooks Tips Reloaded- Part 1

One of our Dental CPAs, Deana Jordan, posted an article in the January issue of Dentaltown magazine discussing QuickBooks: 10 Tips to Stay Organized and Efficient. We received so much great feedback from clients and others in the dental community who found the article really helpful. So we decided to further discuss Deana’s QuickBooks tips in a 3-part series blog post!

These tips help educate dental practice QuickBooks users on what they should be doing to not only better manage and organize practice finances but also help the practice advisers, especially in regard to practice decisions. 

Here is Part 1 of Deana’s QuickBooks Best Practices Tips:

.     1..     The Beginning: Basic Booking Tips to Jump Start Your Journey

o   Maintain separate accounts

The rule of thumb for any business is to always keep personal and practice checking accounts separate. Your business is a separate entity, so never comingle funds. 

o   Keep Track of your receipts to support your expenses

Keeping accurate expense records and updating your records regularly is the best way to ensure organization and efficiency.  Whether it’s scanning your receipts or using a filing system- don’t throw them away. They can be used for record verification when you least expect it.

o   Have a spare credit card for practice transactions

Using a separate credit card for your professional practice expenses is key. Also reconcile your credit card’s expense statements monthly- even if you can only spare 30 minutes to do so. By reconciling your expenses on a monthly basis, your records will remain up to date and accurate. So when your financial manager goes in to pull reports, they can do so more efficiently without waiting time digging around to find missing receipts.

     2.       Selecting the best QuickBooks Software Version

o   Choose the version of QuickBooks that best suits your practice’s needs

§  QuickBooks Pro- For practices that are just starting out and are more focused on getting up and running

§  QuickBooks Premier- For more established practices that are expanding their business and service offerings

§  QuickBooks Enterprise- For practices that have more complex levels of record keeping and need more flexibility in targeting the software specifically to their needs

§  QuickBooks Online – For online access for dental practices on any level

o   Our Dental CPA team recommends QuickBooks online, so you can login anywhere at anytime. There is no software data to manage and the system is automatically upgraded. Your data is stored on the Intuit servers so there is no need to process manual backups. If you have an offsite bookkeeper, QuickBooks online makes it easier for them to access your books from anywhere, that’s less time spent commuting to the office!

-        3.   Creating Customizable Chart of Accounts

o   If your practice is in its early stages, and you are not sure as yet which reports you prefer to see, start with a Standard Dental Chart of Accounts. QuickBooks will generate a chart of accounts based on the type of business entered at initial startup, in this case, a dental practice. Here is an example of a Chart of accounts for a general dentist.

With QuickBooks, and a trusted Dental CPA on your side, being organized and ensuring that your practice’s finances are accurately managed is simple. Regardless of the size of your Dental practice, you want to ensure that you are running your business efficiently by having good bookkeeping and accounting practices. 

Stay Tuned for part 2 of our three part series on Ten Tips to Stay Organized and Efficient. You can also check out Deana’s original Dentaltown article here. 

For information on questions specific to your practice’s accounting needs, contact Deana or reach out to any of our Dental CPAs by emailing info@dentalcpas.com

End of the Year Tips to Minimize Your 2012 Taxes

As many dentists know, the upcoming year end is always the time to consider minimizing your taxes. Here are a few tips from the CPAs at the Dental CPAs.

• Maximize your contributions to retirement plans. Contribute more to your 401k by the end of the year to reduce your taxable income and your tax bill.
• Consider using a credit card to prepay expenses that can generate deductions for this year such as supplies.  Also, some dental vendors offer no financing loans to purchase supplies.
• For 2012, the section 179 expensing limit is $139,000. For 2013, as it stands now, is $25,000 of purchases so if large equipment cost purchases are being considered, you may want to do them while the higher expensing limit is available.
• Bonus deprecation is also available for 2012. Meet with your CPA to see what combination of elections makes the most sense for you.  Consider equipment purchasing with loans as well so that you don’t have to lay out the cash but still get a full deduction for the purchases.
• Prepay your mortgage and real estate taxes. Even if your payments aren’t due until January, you can pay them in December to deduct this year, if you itemize. Beware though that if you are subject to the Alternative Minimum Tax (AMT), the real estate tax deduction may not be of any additional tax deductible value on your Federal tax return.
• Give away your money. If you were planning to give a lot of money to someone, utilize your annual gift exclusion of $13,000. This is not an income tax savings strategy but rather is an estate reduction strategy.  If you are concerned about having a large taxable estate, don’t miss the opportunity to utilize your annual gift exclusion each year.
• Finalize your records. If you plan to deduct mileage on your personal car, make sure your mileage logs are complete.  Review how long you need to keep your paperwork before throwing out any records.
• Do an AMT analysis. If there’s a chance that you will be subject to AMT, analyze your deductions to see if you are better off waiting to make some of the above moves. Once AMT comes into play, some of the end of the year tax moves will have no tax benefit.  Deductions such as state income taxes and real estate taxes are always an AMT deductibility issue.
• Fund your IRA.  If you cannot do a deductible IRA contribution, consider whether you should make a non-deductible IRA contribution as it could become a possible future Roth IRA conversion for retirement or estate planning purposes.  You have until the tax filing deadline including extensions to make your IRA contributions.

For more information, please contact info@dentalcpas.com

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11 Reasons Why a Dental CPA is Preferable to a General Accountant for a Dentist

Here are 11 reasons why using a dental CPA is preferable to an accountant who isn't dental specific. We'd love to hear your suggestions for other reasons as well.

11. Your accountant doesn’t know the difference between a prophy and a root canal.

10. Your accountant doesn’t know how participation in insurance plans affects the percentage of adjustments to gross productions.

9. Your accountant doesn’t know what reasonable associate compensation models are.

8. Your accountant doesn’t know if your accounts receivable balance is ‘normal’.

7. Your accountant doesn’t know what your overhead percentages should be based on your specialty.

6. Your accountant doesn’t know how much your hygiene department productions should be relevant to their compensation.

5. Your accountant doesn’t know what portion of your practice should be dentist production versus hygiene production.

4. Your accountant doesn’t regularly present to dental association, study clubs and schools on such topics as, How to Buy a Dental Practice, Life after Graduation, Overhead Benchmarks, etc…

3. Your accountant has never heard of Dentaltown.

2. You don’t understand why vendors are saying that new Cerec is practically ‘free’ after ‘tax deductions’.

1. You are seeing twice as many patients as last year, but your cash flow is tight.

These are 11 reasons you should contact the Dental CPAs for a complimentary consultation about your practice performance.


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

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Deferred Interest on Dental Balance Sheet - What is It?

I'm trying to understand some Balance sheets and was wondering if someone could explain why the deferred interest on a lease I have is listed on my assets. Since deferred interest increases the amount I owe on the loan wouldn't it add to the liabilities side of my balance sheet?

Hopefully you understand debits and credits. If you're incurring interest expense and NOT paying it, yes, it increases the loan balance. That's the credit side of the entry. Since you haven't paid it and since you're a cash basis tax payer and can't deduct it, the debit would fall to the balance sheet. Seems weird, right?

Think of it like this: you owe the bank $10k in interest; however, they say "Keep it for now, you'll owe it to us.” So they increase what you owe by $10k. It’s almost like they "gave" you another $10k, but you didn't receive it in cash. So if you want to show what you really owe the bank you have to increase the loan by $10k, which increases the liability; however, for your "balance" sheet to balance, you have to increase assets by $10k. Since you didn't receive it in cash, you have to add another asset called deferred interest.

Don't make me explain that again.....

Thanks Tim, that actually did help a lot. And explaining accounting principles to me is no easy feat!

This first appeared on Dentaltown.

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

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Can I Take The Section 179 Personally?

I am buying about $200,000 worth of equipment. Can I take the benefit on my personal taxes and derive more of the benefit that I could otherwise through my corporation.

Maybe, however, why not keep it simple, take the deduction at the corporate level and reduce your w-2, therefore getting the benefit on the personal return. I guess I’m not seeing why you'd want to jump through more hoops to arrive at the same bottom line?

If you need to borrow money from the corporation to supplement your income, do that. Just make sure you document everything and seek advice from your CPA and\or attorney.

This post 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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Buying A Dental Practice That Has An Out-Dated Look

Tim,

The more I read from you the more I like you.

My first practice was $30,000 (total purchase price) and it grossed a bit more than that in a year. I borrowed $70,000 more and spruced it up a bit, with results much like you described. A few years later (almost 20 years ago now) we sold the practice to Cycledoc who has further improved it an turned it into a thriving practice.

I think we were around 10 times the initial gross when we transitioned.Patients don't have emotional attachments to old dental stuff. All in all, I think a dental office should be "slightly" better decorated than the average home in the area.

Thanks Neil.

As I’ve said, I’ve been through a number of similar older practice buys. Two years ago a client bought a practice with the old brown 1970 wood paneling through-out the entire office, one of the first things he (and a friend) did was go in over a weekend and simply re-paint it a whitish\eggshell type color to simply brighten the place up. He said his team arrived for work Monday morning (he wanted to surprise them) and commented how different, brighter and better the placed looked AS did just about every patient that came in over the next couple of weeks. Over the next 6 months he replaced some of the older chairs, equipment, desks, shelving, updated the wall coverings (pictures, etc.) and had numerous compliments.

It created excitement among his team to the point that they wanted to help and make suggestions. Needless to say he's done VERY well with that practice, almost doubling the revenue from $530k to nearly over a million over the past 24-36 months.

This post 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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