Thursday, April 28, 2011

Are CPA Fees Too High for Dental Accounting Services Rendered?

I became an IC in June of 2010 and paid my current CPA about $700 to incorporate me.

What did that involve? I suspect it not only created your entity it covered applying for your fed and state ID numbers as well for corporation income and payroll taxes. If so I think that amount is fair.

I also agreed to allow him to run my payroll (it's just me) and set up my taxes and 401k. His firm does everything for me, all I've really had to do is follow their instructions and sign a few forms they prepared on my behalf. I received a bill for Aug 1st through January 31st for about $6k and the other day I received another bill for February and March of about $1500.

I don't have anything out of the ordinary that I believe would cause such large bills.

Except you just said they do "everything" for you...again, what does that mean? Get a list of services they provided.

That's pretty much it and most of my colleagues are paying around 2k a year for the same services.

Really? Most of your colleagues became IC's in June, created entities and have their CPA firm apply for ID numbers and run their payroll and set-up their 401k plans? Are you sure about that? Those are NOT typical annual services....some of them are and even then, services like payroll and 401k administration are done by other providers, NOT CPA firms.

Is there a way to approach this without offending him? I prepared to give him an ultimatum to reduce my fees for the remainder of the year to total around 2-3k AND I also want to negotiate my current bill of $1500.

Well I hope you aren't prepared to throw out the ultimatum right from the get go. That's NOT the best way to open up a discussion where you might want something. If I were you I’d go in prepared, that is, ask for an itemization of the bills - i.e. services provided and the cost of each service. Review that before the meeting and use the services\costs you have issues with and allow them to explain. If you need to keep your costs within a certain range that's fine. Ask them what services they can provide to keep the fees within your budget. You might find that having a payroll service maintain your payroll MIGHT be cheaper anyway.

Do I have a right to refuse to pay the bill or only pay a portion that I deem appropriate?

That's an odd question in my opinion. Does a patient of yours have the right to refuse a bill for services you rendered or only pay for the services THEY deemed appropriate? Think about that. Part of the lesson here is to ask about the fees of the specific services you want performed BEFORE they are performed, even if it's an hourly rate for a service they can't state a specific price for.

Good luck.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

For more information or to sign up for our newsletter, please contact
Follow us on TwitterFacebook and Pinterest

Tuesday, April 19, 2011

Was an S-Corp Election the Correct One for this Dental Start-Up?

I live in Massachusetts, but I am using a New York CPA for my taxes. I was happy with what he did for my taxes so far, but ever since I began the process of my start-up, I have started to lose some confidence in him. Even though I told him that my start-up was projected to open in 2011, he told me to set up my subchapter S-Corp right away. I didn't know anything at that time, so I just agreed and paid him $750 to set up my corporation.

I did not tell my bosses about my corporation because I didn't want them knowing about my start-up yet. Therefore, my paychecks still went to me, and not my company. So my corporate tax return for 2010 reported a $2471 loss, and $24221 total assets, from various costs, such as lease negotiation fees, lawyer fees, demographics reports, architect fees, some equipment, supplies, etc. After all the paperwork, he charged me $650 for the preparation fee, and I still had to pay a $456 minimum Massachusetts tax. I think that this $1106 extra cost could have been avoided if I did not set up my S-Corp until 2011, and I should have been informed of these costs at the beginning.

Was setting up my S-Corp in 2010 the right thing to do, or did my CPA rip me off for $650, and caused me to have to pay an unnecessary $456 in taxes? Was there an advantage to reporting the "soft assets" in 2010, compared to 2011?

I personally think I got ripped off, and have started to look around for a potential new CPA. What are the main advantages to having an in-state CPA versus an out of state CPA? I’m trying to decide between hiring a Massachusetts CPA, or going for a dental town CPA.

The advice to create the S-Corp now has absolutely nothing to do with what state the CPA lives in, in my opinion. It's a judgment call by the CPA plain and simple. An MA CPA may have made the same call.

That said, the question is, was creating any entity at that time the right choice? It probably was and I would have likely suggested it as well. However, I don't think I would have suggested S-Corp if MA accepts LLC's, which I believe it does.

If you plan on borrowing 100% or near 100% from a third party for your start-up make sure you talk to your CPA about S-Corp tax basis issues and how it affects the shareholders ability to deduct initial losses.

Thanks for the response Tim. I was wondering if it was more advantageous to hire an in-state CPA or an out of state CPA. I see posts about people asking for references for CPAs for their state on this forum all the time, so it makes me wonder why. Is it really that more advantageous for someone to hire a CPA that's based in their own state?

Primarily, you need to consider the expertise and skills of the CPA first and foremost, NOT what state they’re in, IMHO.

Secondarily, YOU have to consider what YOU'RE comfortable with. Some people prefer someone close by that they can walk or drive to for face-to-face meetings, I believe that's what drives the requests for "CPAs in my state". Others are comfortable with the long-distance professional relationship which has become more prevalent with the internet, webconferencing, skype, etc.

Even though we're based in MD, I believe our firm knows the surrounding state laws very well (that is, MD, DC, VA, PA) because we've always had clients in those areas.

I'll be the first to admit when we get a client out-of-state (other than the 4 I mentioned above) there's more work involved for us initially to get up to speed on the state and local specific tax laws like income, personal property & sales tax. However, because of the internet and our tax law library provider, all we really need to do is read up on it. The federal income tax laws apply to all states and many states follow the feds with respect to those taxes. So it's a question of learning about the entities they allow, how they tax them and the specific state laws on all the taxes.

Obviously the more clients you get in any one state helps you commit those state specific issues to memory.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

For more information or to sign up for our newsletter, please contact
Follow us on TwitterFacebook and Pinterest

Tuesday, April 12, 2011

How Much Should a Dentist Keep in the Business Account?

Suze Orman recommends 8 months worth of your monthly income for a "rainy day" fund in your savings account

What does a dentist keep in his business Checking and/or savings Fund.. For those slow months, accidents or facility issues can spring up on us. 6 months worth of Operating Expenses?

It directly conflicts with take home income in my case and I like keeping the two TOTALLY separate.

I also am the type that’s always on the lookout for a chart purchase, expansion, office acquisition - not so much CE and Equipment. And if I do purchase something of value and considerable money, should I buy cash or take a loan for the other 80 and stay liquid.

Any suggestions would be great.

In my opinion you want to keep your business account as low as possible. I generally suggest 1/2 months to one month’s expenses. 1/2 should suffice as a/r should cover the other half if something happens where you need to cover a full month. If you want to have a "business" fund, we suggest you strip it out of the practice, either as wages or S-Corp divs and set it aside personally and when the time comes for a large need you simply lend it to your practice and pay yourself interest.

Every business (practice) should also have a LOC available as well, maybe as much as 10% of gross available to borrow

We believe business accounts are more susceptible to fraud and theft. Staff can see how much is there when mail comes in. Depending on how it's delivered others might have access to it. Offices are more susceptible to outside theft. When cash balances get heavy small discrepancies are less likely to be noticed. If the practice gets sued can the cash accounts be frozen.

If you prefer $100k, why not take out $50k and place it in a personal savings account? You can always give it back quickly through a phone transfer.

We just think you need to be very careful keeping excess cash laying around in business checking accounts.

Tim - Correct me of I’m wrong but the reason I think you'd like to see the Checking account balance so low is so you don't get double taxes on Biz Income at the end of the year.

No, really has nothing to do with income taxes.

But what if you wanted to keep in 100-300K for a down payment for a piece of property or a office acquisition. At some point your personal income has to take a back seat to save this capital come up right?

Do you think it isn't worth saving it to that point? - also do you believe in Work Stoppage insurance?

But having that money sitting somewhere usually means you're going to pay tax on it and if you're an LLC or s-corp, that money will usually be taxed to you anyway. So why not take it out of the business and set it aside personally for future use. I’m not suggesting you strip the cash out of the business to spend, I’m suggesting that if you want to park a cushion of cash somewhere. I’d prefer a personal account, earmarked for business.

For the record, I like your advice given here....but for arguments sake...Say I wanted to go to Europe for a month.. Do you think that’s enough? FYI I am at 1.2/year MM with about 65% overhead. Seems like the treadmill may need to have a bigger cushion behind it to me.

In my mind that month’s money will dry up too quick

It may not be; however, as you've shown, you're thinking WAY ahead and I’m sure you'll have contingency plans in place.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

For more information or to sign up for our newsletter, please contact
Follow us on TwitterFacebook and Pinterest

Tuesday, April 5, 2011

First Year Dental Practice Tax Questions

2010 was the first year for my practice as a startup, a PLLC. We are showing a big loss.

Does that loss get carried over to my personal return so I get a refund? (I made money working for someone else and money as an employee of the startup.)

You should under the right situation, and I suspect you have the right situation. The question then becomes, do WANT to use a VERY large loss if it drops you into the 15, 10 or god forbid, 0 % tax brackets? Not if you can help it.

Taking losses at the appropriate tax brackets is key. I've seen returns where the taxpayer took as much loss as the tax code allowed and created negative taxable income. These taxpayers LOST the benefit of either their itemized or standard deductions along with their exemptions for that year. THOSE deductions CAN'T be carried forward. Depreciation deductions CAN be carried over if done correctly.

Good luck.

Thanks for the reply. I have a call out to my accountant to discuss this.

According to my EOY Statement of Income and Expenses, if I didn't pay myself any salary, the business would have shown only about a $20k loss. Since I paid myself, it shows a bigger loss than that. I don't believe that number includes any loan payments or depreciation.

Oh boy, wages? Is the PLLC being taxed as an S-Corp? If so, check to see if you have a tax-basis issue now....generally, without basis you cannot deduct losses...

Yes, taxed as an S-Corp. I'm not sure what "tax-basis" means, but my monthly report does have "Income tax basis" in the title.

Your accountant should know. Basically if you haven't put any money into the practice (i.e. funded 100% with bank debt) you may not have a tax basis unless the bank loan is in your personal name....

Yes, the bank loan paid for it all. It’s in the practice's name.

That doesn't sound promising. If you were looking forward to using some of those losses you should have waited to elect S-Corp. There may be a few little things you can do now, after the fact. Email me after you meet with your accountant and let us know what the deal is. If they say you can't do anything at this point shoot me an email if you want to chat off-line about it.

This first appeared on Dentaltown.

Send your questions to Tim Lott, CPA, CVA at

For more information or to sign up for our newsletter, please contact
Follow us on TwitterFacebook and Pinterest