Wednesday, May 26, 2010

How Will Dentist Be Taxed?

W-2 income gets taxed with Medicaid/Medicare, SS, and Income.

Simple IRA contribution gets taxed with Medicaid/Medicare and SS

Distributions for an S-Corp gets taxed with Income only.....

Is it safe to say the average dentist makes 120K/year, therefore anything above that should be paid as a distribution? For example if I take home 200K, I would have 120K go as W-2 and then the other 80K as a distribution from the S-Corp. But I also make my 11.5K contribution to the Simple IRA, which would mean my yearly income is:

120 + 80 + 11.5 = 211.5K, but each chunk is taxed differently.

Now if I am also paying my wife and she gets 36K for W-2 and 11.5K for Simple IRA... filing together 259K and Obama hits us with the over 250K tax? So the only extra Obama tax would be on that 9K over the limit or on the total amount?

Now when all is said and done and all write offs have been made…at the end of the year my S-Corp still has 50K in profit that I choose not to take home because I want to build just in case shit happens account for my office that gets taxed as a corporate profit?

What level would that corporate tax on the extra 50K?

I have an accountant and we are meeting soon to go over all this, just want to educate myself a bit before our meeting with this little hypothetical situation.

The $50k will be taxed on your individual return for federal tax purposes and most states, NOT taxed at the corporate level, whether you take the cash or not.

Thanks Tim. Are my other statements true? Do we know what the Obama tax will end up being?

I see nothing really wrong with everything else you said, but haven't been worried about the Obama tax just yet. There are too many other planning issues for 2010 still occurring.

This first appeared on Dentaltown.

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Monday, May 17, 2010

How Following Reference Check Best Practices Can Help a Dentist Avoid Legal Consequences

Hey Folks,

A long time friend of our firm, Jim Randisi has written an article on the legal importance of performing reference checks the right way. This is crucial in today's environment as a deterrent to embezzlement and other serious employee issues.

Have you been injured by an individual that you hired only to find out that same individual engaged in similar behavior for a prior employer? There are steps you can take to protect your firm from similar circumstances in the future.


Employers have an obligation to provide truthful and factual information on past employees to prospective employers.

Let's talk about an example that probably happens often. You, as a prospective employer, are considering an applicant for a management position in your office. Assume that the applicant was “forced” to resign from a prior employer because the individual was using their position to steal money from customer accounts. Let's further assume that the individual was charged with criminal activity but agreed to make restitution as part of a plea agreement. The applicant might only indicate to you, the prospective employer, that they resigned. And, they will most likely fail to mention the circumstances under which they resigned

You, as the prospective employer, call the prior employer and tell the prior employer you are thinking of hiring the person for a position which would put that person in a similar position. The prior employer has an obligation to inform you of the truthful factual circumstances of that person's resignation. If the prior employer does not disclose the truthful, factual information surrounding that person's resignation, the prior employer could be held liable for the tort of negligent referral if that person likewise steals from you and causes injury.

You cannot enable negligent referral if you have not made the effort to call the prior employer and document the call.

Courts are increasingly intolerant of companies unwilling to communicate truthful, factual information about former employees. The courts are losing patience with employers concerned only with their own liability at the expense of society’s need to have access to reasonable information which prospective employers need to conduct business. This is particularly true if the former employee exhibited dangerous and aggressive behavior.


No cause of action automatically arises by a former employee if the communication is truthful and factual and given without malice. This type of communication enjoys qualified privileges in general. The law is well established that an employer has a qualified privilege to provide information about a former employee.

Many states have enacted statutes to further protect this communication. These statutes are designed to benefit society by encouraging honest references.

There is for example another case in which an employee was asked to resign after bringing a gun to work. His prior employer had given a reference that said that he was let go in a corporate restructuring and did not mention the gun incident. The individual then shot and killed three supervisors at his new job. That case, Jerner v. Allstate Insurance Co., No. 93-09472 (Florida Circuit Court, Aug. 10, 1995), was settled for an undisclosed sum.

Stating a truthful and documented fact between employers is always a defense to a claim of defamation. Who is helped when you don’t give a useful reference. When employers give only neutral references, the company risks potential liability for not warning other prospective employers that a bad actor is coming their way.

What can you say to prospective employers that inquire about former employees? The overwhelming advice is usually to say as little as possible.

That's almost all you need to know to deal with 99.5 percent of the situations you'll confront in responding to a reference check. Of course, you should at least acknowledge an employee's dates of employment, jobs held, and sometimes his pay rate. But what about the .5 percent of the cases in which more may be necessary?


That was Howard Cosell's mantra. It's what many people who give employment references would really like to do. And you could get away with it most of the time because most employees are good and deserve favorable references.

But as one federal judge recently observed, in today's world, "It is not uncommon for a soured employer-and-employee relationship to lead to litigation -- whether meritorious or frivolous. Thus it should come as no surprise that statements [to prospective employers] have prompted litigation by former employees."

The fear of defamation claims has enabled more than one marginal or substandard worker to go from one employer to the next, leaving havoc in his wake.

An egregious example of that havoc, a case that should cause you to reexamine the "speak no evil" approach to references, was reported recently. In that case, a doctor left one hospital where his performance was substandard and took up his practice at a hospital on the West Coast.( Kadlec Medical Center v. Lakeview Medical Center, 5th Cir., No. 06-30745 (May 8, 2008).

The doctor's malpractice at the second hospital left a young mother in a permanently vegetative state.

After the young woman's husband recovered a verdict against the West Coast hospital, that hospital sued his previous employer for failing to warn it about the doctor's problems.

It was proven at trial that the first hospital knew that the doctor was a substance abuser whose professional competence was seriously compromised by his addiction, but it said nothing to the person doing the reference check.

The first hospital merely filled out a form confirming some basic facts of employment and declined to provide any more information, citing the volume of inquiries and the burden of responding more fully.

The employer learned the hard way that the law required more. Under the circumstances, it was obligated to disclose information about the former employee's performance problems so the prospective employer would be fully and accurately informed about him when making the hiring decision.

While the $4.1 million verdict against the hospital may be the largest of its kind, it isn't the first time an employer has been held liable for failing to disclose important information about a former employee.

Other cases have involved school employees whose patterns of sexually abusing students have been covered up so they can be quietly moved on to another unsuspecting employer. See Randi W. v. Muroc Joint Unified School Dist., 929 P.2d 582 (Cal. 1997) (victim of sexual molestation by vice principal had claim against school districts that formerly employed him, because they had recommended him without disclosing disciplinary actions for inappropriate conduct)

Lessons for employers

Lesson one: Do your homework. When you're hiring someone, don't just do a cursory background check. Call the applicant's references, and get as much information as you can. If the job involves tasks like working with children, the elderly, or other vulnerable populations, be especially thorough.

Negligent hiring cases also can involve hotel night clerks, cable television linemen, and other jobs that might put the employee in a one-on-one situation with customers. Check for criminal records in addition to calling former employers and references.

If the West Coast hospital hadn't tried to do a thorough background check, it wouldn't have had a claim against the previous employer that concealed important information and would have been stuck with the verdict against it.

Lesson two: Think twice before you give the name, rank, and serial number response to an inquiry from a prospective employer. If the employee it's asking about has a violent streak or a substance abuse problem that could present a danger to coworkers or the public, you seriously should consider passing that information along if it is truthful and factual and documented.

Of course, before revealing anything negative, double-check your information to be as certain as you can that you're correct. Some defamation cases have merit because the employer was too quick to pass along false information.


In almost every case in which an employer has been found liable for statements made during a reference check the statements were false, made with malice, or made by someone lacking sufficient knowledge of the plaintiff’s employment.

Once you're satisfied that the negative information is both accurate and important for the prospective employer to know, choose a smart way to pass it along. That may be the hardest thing to do.


The reality of the threat of defamation from employer references is often well exaggerated. The reason employees seldom win these cases is because they must prove malice. In essence, they have to show not only that the statements made in the reference were defamatory and false, but also that they were unusually reckless and malicious and that the employer had no basis for making the statements at all.


Those employers that are found liable for defamation in the context of giving references have usually made statements that a reasonable person would not have made. e.g. “Yeah Joe worked for me and I think he is a no good drunk.” There are situations in which even a reasonable and careful employer can find themselves on the wrong end of a liability judgment. Reference checking is not one of these types of situations. An employer who sets up a proper system of guidelines, training and controls is generally protected from liability.

James P. Randisi, President of Randisi & Associates, Inc., has since 1995 been helping employers protect their clients, workforce and reputation through implementation of employment screening and drug testing programs. Mr. Randisi can be contacted by phone at 888.494.4050 or Email:  or the website at

The information in this article is not offered as legal advice. Randisi & Associates, Inc. is not a law firm and does not offer legal advice. This Presentation is not intended as a substitute for the legal advice of an attorney knowledgeable of the issues covered as they relate to a user’s individual circumstances.

Send your questions to Tim Lott, CPA, CVA at

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Tuesday, May 11, 2010

Dental Associate Simple IRA vs Traditional IRA Question

I'm [sadly] still an associate employee (looking diligently to find my own practice). I just wanted to double check: at the office I contributed fully in 2009 to a SIMPLE IRA (Vanguard fund) plan with employer 3% matching.

Prior to my eligibility of the SIMPLE IRA, I started a traditional IRA a few years back. Some questions, as I'm doing filling out my 1040:

1) I just wanted to double check, am I still eligible to contribute $5000 to my traditional IRA? I believe the IRS says I can still contribute to the traditional IRA (even though I have a work retirement plan) though it may not be tax deductible. I could have sworn though, I read somewhere that if I have a work retirement plan, I cannot contribute to a Traditional IRA; I think I misread something somewhere.

You can still contribute to a Traditional IRA.

2) How do you feel about converting traditional IRA to Roth IRA?

For me or you? ;-) It is a case by case decision. There are many variables and there are both tax and non-tax issues to consider.

3) Assuming I find a practice of my own in the future, is there anything I could anticipate for the future? Any current plannings on my part I could do NOW that could help assist in FUTURE retirement planning?

Build your post tax investments.

I figure I could at least add my wife as an employee to the future practice and contribute her the full $11,500 to a SIMPLE IRA plan. Would I have to use the same Vanguard fund I have?

No, AND you may find that there's a better plan than a SIMPLE.

Thanks Tim for the responses!

If you don't mind, can you elaborate a bit more on:

1) post tax investments? Are you referring to "conventional" mutual funds?

Accumulated savings from after-tax dollars. In addition to mutual funds, there are CDs, MM accounts, treasuries, savings accounts, etc.

2) What other plans may be better than a SIMPLE, assuming there are multiple employees in the future practice?

401k/PS plans. DB plans MIGHT be better, but it depends on the facts and circumstances.

The reason why I suggested building your after tax investments is that sometimes the operating profit of a practice MIGHT not support the ability of the owner to maximize their retirement plan contributions. HOWEVER, if they have an abundance of after-tax investments not being put to use, it MAY make sense to move those funds to the deductible retirement plan AND let the governments subsidize that transfer through income tax savings.

This first appeared on Dentaltown.

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Wednesday, May 5, 2010

What Information Should Dentist Ask for When Purchasing a Dental Practice?

I am seriously looking into purchasing a practice. I have been pretty unsuccessful in getting some documentation from seller doc. Can anyone tell me specifically what to ask for so that I can properly analyze the practice to see if it’s viable? The price is right, and it seems like a good fit, but I don’t want to buy a sinking ship.

I have a home spun profit/loss statement from '09, but I need a lot more. What should I be asking for? Tax info? Production reports?

Thanks for the help.

Check out this Dental Purchase Checklist.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

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