Friday, November 25, 2011

Be Alert for Lease Agreement Taxes on Dental Equipment

Don’t get double taxed on your business’s personal property. Recently, we have heard from some of our clients that they received bills from the lease finance company that included a personal property tax charge. If you have entered into a lease finance agreement and your state assesses the personal property (equipment and furniture) used in your business, you may be paying too much in personal property tax.

Many lease finance companies pass personal property tax bills on to customers that have entered into agreements with them. Although you must generally report details of leased property on your personal property tax return it should not be included in the schedule of personal property to be assessed by the state.

Always consult with your tax preparer for specific reporting requirements in your state. If you have paid tax on leased property on prior year returns you may be able to amend those returns and request a refund up to three years after the due date of the original return.

For more information, contact Lance Jacob of the Dental CPAs.

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Tuesday, November 22, 2011

Are Quarterly Prepared Dental Financial Statements Worth the Cost?

My accountant recommends doing quarterly financial statements.  I agreed to this for the first 2 quarters so far but what I have received from them is not too much different than what Quickbooks will generate for me.  They do calculate the assets and liabilities which I can't do accurately with depreciation, but actually expenses/income report are not that much different than what I can generate with the push of a button.

They said it would make doing my tax return take more time (and money obviously) if I don't do quarterly financials.

So, should I keep paying about $500 a quarter to do financials or not?

1. Do you "need" the balance sheets every quarter? When they're prepared how do you use them?
2. Can't you record the depreciation quarterly in QuickBooks? (The answer is yes.)
3. How much more would it cost to prep the tax return without the quarterly financial statements? $2,000 more?  I doubt it

25 years ago before practices had access to software like QuickBooks and Quicken we were doing monthly or quarterly financial statements because this was the ONLY was the practices could see their Profit & Losses. Even then, what we learned was many wouldn't even read them. They would wait for our mid-year and year-end meetings for us to review them with the client and explain them.

Once practices had access to QuickBooks and the like, the "need" for us to prepare CPA financial statements decreased drastically and we were the ones that went to the clients & said "Do you really want to pay us for these when you can generate the same information yourself?" Many agreed and that's why the majority of our clients don't want or need us to prepare CPA financial statements. Just about the only time we do it now is when a bank requires it.

This first appeared on Dentaltown.

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Friday, November 18, 2011

There Are a Lot of Things to Consider When Selling Your Dental Practice

A Lot to Consider When Selling Your Practice

This is an article from our good friend, Thomas Snyder, DMD, MBA.

As our economy slowly recovers, we have seen an increasing number of doctors making the decision to sell their practice. Don't think this decision is like turning on a switch - there are many things you need to consider. Here are a few points.
1. Meet with your Financial Advisor
Can you really afford to sell your practice? You may be surprised. If you have never had a financial plan prepared, it's critical to take this step. We often speak to potential sellers who are emotionally ready to sell, but financially unable to do so. You may find that you'll have to put your plans "on hold" for a few more years, or conversely, feel quite confident that the practice sale proceeds will only enhance your retirement lifestyle.

2. Get a Comprehensive Practice Valuation
If you plan to use a broker, retain one who will prepare a "formal" valuation using multiple valuation methods.  Most brokers charge a fee to prepare a formal valuation and some will credit the valuation fee against the future sales commission. Getting a "free" valuation usually does not serve your best interest. Just having a "number" appear on a spreadsheet with financial projections does not do you justice when potential purchasers are trying to determine if they want to make the commitment to purchase your practice.

3. Discuss the Tax Ramifications of a Sale with your Accountant
If you are a "C" Corporation, for example, there are some "road blocks" that must be overcome.  How will you allocate goodwill between the corporation and yourself? How tax efficient will the future sale be? Getting answers from your accountant regarding what you'll retain after a sale is critical to your decision to sell. Remember too that the clock is ticking on the capital gains rate extension that is due to expire at the end of 2012.

4. Do Not Slow Down or Work Less Days
When you take this step, many doctors often stop accepting new patients as well. This may hurt your practice's value and make a potential purchaser less interested in buying a practice that can be in a decline.

5. If you have an Associate, Be Sure that they have an Employment Agreement
This should contain a restrictive covenant (if allowable) and non-solicitation clause as well as a clause that transfers the associate's covenant to the new purchaser. If you do not have an existing agreement, consult with your attorney, as you may ask the associate to sign an Employment Agreement with these stipulations included for additional compensation known as "consideration." This will protect your practice's value. Selling your practice without a covenant and transfer clause will be very detrimental.

6. Take an "Honest Look" at your Facility
You do not necessarily have to make any large capital expenditures, especially if you want to sell in less than a few years. However, you should consider cosmetic enhancements if needed, whether it's fresh paint on the walls, new carpet, tile, landscaping, etc. Get your practice to look more aesthetically appealing. First impressions are always critical to any purchaser.

7. Fee Increases
We suggest you obtain a fee analysis to determine where you stand within the fee percentile range in your area. If you are well below average and you still have a year or so to go before sale, do yourself a favor and increase your fees. Chances are that your patients will accept your fee increase, you will increase your income, and you may even increase the value of your practice.

8. Purge any Uncollectible Accounts Receivable
Make every effort to collect those accounts that are past due over 90 days. If you fail to do this, it will become a "sticking point" in your negotiations. Usually Accounts Receivable are collected on your behalf for the first ninety days at no charge to you.

9. Retain an Attorney who has Dental Experience
This decision alone can save you and the purchaser thousands of dollars. Ask your accountant or broker for referrals, as they often work with attorneys who have considerable dental experience.

10. Be Realistic in your Timing.
Sometimes we get calls from doctors who want to sell their practice in six months or less!  This is almost an impossible task for any broker. We advise prospective sellers that you should allow a broker 9-12 months to sell your practice.

In the end, a good deal of planning is necessary for you to really get your practice ready to be put on the market. Careful planning will give you the highest return, and most importantly, peace of mind. 
You may reach Dr. Snyder by following this link.

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Monday, November 7, 2011

Creating a Management Company for Your Dental Practice Requires Careful Documentation of Fees

Documentation is the key: For anyone looking to create a management company for their dental practice administrative tasks – Please read:

Income Tax—Intercompany Management Fees: The taxpayer owned a trucking business that was organized into five wholly owned corporations, including a single member LLC whose sole business was leasing trucks to the affiliated entities. The LLC paid management fees of $9,000 per month to the other entities for consulting, accounting, sales management, and safety and driver relations. The Tax Court ruled in favor of the IRS in denying approximately half of the management fees because the taxpayer did not show how the fees were determined and whether they were at arm's length. The court was also not convinced that the fees incurred on behalf of LLC were ordinary and necessary under IRC Sec. 162. Daniel Fuhrman, TC Memo 2011-236 (Tax Ct.).

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Friday, November 4, 2011

Suffering Has Never Been Made a Prerequisite to Deductibility.

I came across this in one of my readings. I really like the hi-lighted quote – future reliance on that quote could be quite interesting...

Income Tax—Hobby Loss: Taxpayer is a Certified Gilder Flight Instructor who performed flight instruction for the Boeing Employees Soaring Club. On 8/1/03, he formed an LLC to provide private glider flight instruction and glider plane rides. The LLC conducted activities primarily on weekends from March through November during times of good visibility. For promotion, taxpayer maintained a website, distributed flyers at airports and aviation-related businesses, and advertised in a flying publication. Nevertheless, the IRS audited his 2005, 2006, and 2007 income tax returns and decided that the glider activities were not conducted with the intent of making a profit under IRC Sec. 183. The Tax Court disagreed after going through the (nonexclusive) list of factors in Reg. 1.183-2(b) for determining whether a person is engaged in an activity for profit. In particular, the Tax Court noted that a business "will not be turned into a hobby merely because the owner finds it pleasurable; suffering has never been made a prerequisite to deductibility." William Weller, TC Memo 2011-224 (Tax Ct.).

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