Several IRS Tax Court Rulings Dentists Should be Aware of... (if for no other reason than to dispel the myth that the IRS is humorless).

A Bike Sharing Program Isn't Mass Transit

Employee Benefits—Bike Sharing: Expenses an employee incurs by participating in a "bike share program" do not qualify for the favorable tax treatment provided for qualified transportation fringe benefits. According to IRC Sec. 132(a)(5), employers that provide their employees with transportation benefits can exclude those benefits from employees' gross incomes if the benefits are qualified transportation fringes as defined in IRC Sec. 132(f)(1) . A qualified transportation fringe includes any transit pass that entitles a person to transportation on mass transit facilities. A bike share program is not a mass transit facility. Information Letter 2013-0032. 

You Would Imagine They Could Have Thought of a Better Business Purpose...

Travel Expenses for Good Night's Rest: A self-employed tax return preparer that operated out of her home was denied a deduction for travel expenses that were necessary "just to get rest" from the stress of her neighborhood and harassment by clients that called her home at any hour. The Tax Court said that a taxpayer's choice of where to live is personal and her travel to get a good night's rest was a personal, not a business, expense. Meals and entertainment expenses claimed for meals with clients and a catered client party were denied as a business purpose was not established. Joyce Linzy , TC Memo 2013-219 (Tax Ct.).

Bad News for an Independent Contractor Deemed by IRS to be an Employee

Income Tax—SEP Contribution Disallowed: The taxpayer signed a letter of appointment with the British Consulate General (BCG) to serve a three-year term as a trade officer. He was referred to as "self-employed for tax purposes" in the letter and so filed a Schedule C reporting his income and related expenses and took a deduction for a SEP contribution based on his BCG earnings. After finding that the taxpayer was a common law employee of BCG and not self-employed, the Tax Court disallowed his SEP contribution and imposed a 6% excise tax on the excess contribution. On review of that decision, the 9th Circuit agreed that taxpayer was a common law employee. As such, he was not an employer under IRC Sec. 401(c)(4) with respect to his BCG earnings and could not contribute to a SEP and deduct his contributions based on those earnings. Rosenfeld v. Comm. , 112 AFTR 2d 2013-5638 (9th Cir.).

Dental Mentoring Equals Dental Outreach

Here is another guest post from our client, Dr. Donald Lurie.

It seems to me that part of the continuing attempt to refresh and recharge our enjoyment of practice is the chance to be a mentor.  In these times, there is an obvious decrease in the ability to sit back and enjoy the practice of dentistry and medicine.  Interference from many sources,  stress of compliance, making the numbers work are so problematic that the doctor can lose focus on one of the things that brought him into private practice in the first place.  These are indeed difficult times.  The solo practitioner is almost extinct and the mega practices have their own set of problems from a morale standpoint.  

One of the areas that I found to be energizing and helpful was mentoring.  It started with teaching of residents in the early years of practice.  This was a great way to relate and to also keep current.  As all teachers know, you learn more from teaching than as a student.  Not only is it challenging, but it is a great reward to bring the missing link to the "new doc" - experience.  To be in a group and acknowledge an "ah ha" moment is so rewarding.  For those who are fortunate enough to be in a university city with medical and dental students, there is ample opportunity to give (and to relate).  You will find that the student is greatly appreciative that you took the time to help and point the way.  You will also find that you return to the office or to your home with an exhilarating feeling yourself - remember, "it is better to give that receive."  From another view, these contacts become friends, referral sources, and associates that may lead to other projects and outreach possibilities. This is just another example of a means to refresh and recharge.

Knowing how good the feeling is to give a gift to someone, I also had a grand time in mentoring patients of mine.  Actually, my staff also enjoyed it and related to the mission.  There were numerous opportunities where a young patient, entering college, had no idea of his major or area of interest.  This was an opportunity to chat and just become a friend and counselor. We would actually make an appointment in a off time (lunch etc.) to meet and advise.  Did it happen every day?  No, but often enough that we were invited to many graduations (and even some weddings).  I am convinced that we know more than just how to be a good doctor and this ability can be a wonderful way to have that "feel good" day or moment.  So you want to talk about marketing.  This, if done from the heart, is number one in my mind. 

So, it seems to me that you can make some fun out of you practice and have it actually become a source of an outreach program.

I would love to hear from you and share your ideas and experiences.  

More Mistakes Made and Lessons Learned next time.

Dr. Donald B. Lurie

donald.lurie@att.net 

Phone:  717-235-0764

Cell:      410-218-2228

Making a Dental Associate A 50/50 Equity Partner

Lately we have been hearing from dentists and associates about the feasibility of creating a 50/50 partnership. Before this is contemplated there are some questions to be answered and considerations to be weighed.

Here are a few that we feel are important:

•   Is your practice large enough patient base wise for two full-time doctors?
•  Is the physical space larger enough for two doctors to work at the same time or will you be doing a split schedule?
• Is your business house (the practice systems, processes, etc.) in order?
• Is your personal house (any legal issues with either party such as pending divorce) in order?
• How long has the associate worked with you and are you comfortable with his/her practice style?
• Why did you hire the associate in the first place? Was it simply for coverage so you could cut back, or was it to have an in-house buyer when you are ready to retire?
• How does the associate’s patient base compare to yours? In other words has the associate been given insurance based patients and smaller/routine cases compared to your fee for service bigger ticket cases.
• Is the associate going to be a 50% owner immediately or over a period of years?
• As the original owner allowing a 50/50 partnership, are you willing to give up or share control of the practice you built?
• Is the associate capable or willing to take over any administrative duties you currently perform?
• Does the associate get along well with your staff and patients?
• Has the associate added to the growth of your practice?
• How will you share the new patients?
• Does the new doctor perform any procedures that the seller doesn’t and vice-versa?

For further information, please contact our friendly and wise Dental CPAs at (800) 772-1065 or info@dentalcpas.com

Dentists Who Represent Themselves When Leasing Office Space Have Fools For Clients

 This is a guest post from our friends at the Dental Attorneys. 

Putting the final touches on a lease agreement you just negotiated, with what you believe are very favorable terms, is a time to celebrate. Dream office. Great location. Generous tenant improvement allowances. In fact, you’re feeling great and you want to shout with glee about it. There’s just one minor issue you don’t know about: the landlord feels the same way. There’s no wondering why the landlord feels the way he does either, since there weren’t any lawyers to deal with and the dentist thinks he essentially got everything he was after. That dentist just doesn’t know it yet, but by representing himself without a lawyer representing him, problems will likely be inevitable and costly.

Dentists should remember they treat patients. Lawyers negotiate contracts.

Once the lease is signed, you and the landlord often have opposite goals. The landlord wants the lease in effect as soon as possible so he can begin collecting rent from you, even if it’s going to take three, four or even five months to “build out” the office space to your specific conditions. You just want to get into a nice, attractive new space and start running your practice. But how would you know that if a contractor lags on building out your space, he should be the one paying the rent for that extra time, not you. And neither the landlord, nor the contractor, is likely to tell you this, either.

When leasing space for that dream office, you should try to gain every concession possible from the landlord so that when it comes time to pay that first month’s rent, it isn’t overwhelming.

If your landlord is building out the space, he will try to economize on every item, reducing his costs and increasing his net profit on top of the cash already paid to him, a lot of cash for the initial and standard five- or 10-year lease agreement. Your ultimate goals may be the same – long-term financial efficiency, but again, you are at opposite ends of the spectrum when it comes to your dream office.

If you and your attorney agree that the landlord will build out the space and act as a general contractor, you should be prepared to tell him what type of cabinetry you want, whether you want Berber carpeting or tile flooring and where you do and do not want your restrooms located. You should have every detail spelled out: sinks, staff break rooms, patient waiting areas, built-in desks, areas for administrative duties, and the like. But, again, you treat dental patients. Lawyers advise clients on leases. It is sort of like asking an MD to fill a cavity, or you to perform breast enhancement surgery. Competent lawyers are the ones you should turn to when negotiating a lease because the handful who specialize in dental practice law, know all the nondental items you don’t.

With lawyer in tow, and you deciding to take an active role in the building out of your office, there are many issues and items that must be addressed.

In the paragraphs that follow, the authors examine common lease issues that most dentists don’t know about when negotiating their leases.

Office Build-Out Issues

Most leases provide the dentist with a limited time to complete the build out of their space, and the landlord will even try to start the build out period before the lease is even signed. Therefore, you should require that the landlord have a limited time to review your plans, and you should put penalties in your construction contract so that your contractor has to pay your rent if he doesn’t finish on time.

Another common build-out issue is the tenant improvement allowance the landlord gives you. When you negotiate the rent, the landlord will rent the space based upon the leasable square footage, typically measured from the exterior walls of the entire unit. However, the landlord will routinely give the dentist a tenant improvement allowance based upon the usable square footage, causing the tenant improvement allowance to be 10-20% less than had it been based on the leasable square footage. Always insist that the tenant improvement allowance be based upon what you are leasing, i.e., leasable square footage.

Rent Increases

Nearly all leases have rent escalation clauses, which are either contractual in nature or that are tied to one of any number of commonly used economic indexes, such as the consumer price index, cost of funds, and others you know from watching Lou Dobbs on CNN. This is what you and your landlord will be negotiating and, with any luck, your lawyer can talk him into tying such increases to one of the less volatile indexes. There should always be a ceiling on such increases, just as the landlord will insist on a floor for the same indexes.

Damage to Office

Earthquakes, fires, floods, even riots are part of the landscape in California. The authors have noticed all too often in their practice that one of the victims of these calamities is the dental practice owner. The typical lease provides that if the dental lease office is damaged, the lease remains in effect if the landlord elects to rebuild, but imposes no time limit on when it is to be rebuilt. Some leases even require the tenant, or the tenant’s insurance company, to continue paying the rent while the office is unusable. While most of the time rent is abated, even the highly motivated landlord can have difficulty rebuilding, usually because of building permit delays (in the case of widespread destruction) or because insurance companies won’t pay enough to cover the cost to rebuild. The authors have seen numerous situations where a dentist, tired of waiting for the landlord to rebuild, built out a new office at a significant cost only to have the landlord call back two or even three years later and tell the dentist he must return and start paying rent because the dentist’s lease was still in effect.

The solution? Insist on having the landlord start repairs within a certain time period (e.g., 90 days) and complete the repairs by a certain date (e.g.,, 180 days). If the landlord fails to meet these goals, you should have the option to terminate the lease so you can move onto a new location.

Subordination Clauses

The subordination clause is an almost invisible clause in most leases because of the intricacies of the mortgage foreclosure clauses. These clauses typically require that your lease will become subordinate to any new financing the landlord places on his or her building. If our real estate bubble ever bursts, many landlords will lose their buildings as rents decrease and they can’t pay the mortgage. If a lender forecloses and there is a new owner, the new landlord does not have to honor your subordinated lease, and you may lose your dental office space. However, most landlords will allow modification to these clauses during lease negotiations because they know they won’t own the building if this ever becomes an issue. Therefore, always ask the landlord for a waiver of such clauses.

Assignment Clauses

A typical landlord wants to control who occupies his or her space and will insert clauses that virtually destroy a dentist’s ability to sell his or her dental practice.

For instance, it is common to have recapture clauses in the lease, allowing the landlord to cancel the lease if asked to assign it to the dentist buying your practice. They almost always have a clause making the lease renewal options personal in nature, so that when you try to sell your dental practice, you only can assign the lease through the current expiration date. If this is the case, the buyer’s lender won’t finance the sale because they want the lease to last as long as the lender’s loan will be in effect (i.e., 7-10 years). Many landlords may insert clauses that give the landlord a right to claim a portion of the profits you receive from the sale of your dental practice.

Virtually all standard form leases contain provisions which keep the original tenant on the hook for the rent through the expiration of the term, including all option periods. This occurs whether the lease specifically states this, or if the lease is silent as to when the tenant is released from liability, by operation of law. You want to ask the landlord to release you from liability, either at the time you sell your dental practice or at the end of the current lease term, so that you don’t remain liable throughout the entire lease term. Even if the landlord won’t release a tenant at the time of assignment, they usually will allow a release at the end of the then-lease term, based on the argument that if the buyer is a bad tenant, the landlord has lease remedies which allow the landlord to deny the buyer the right to renew the lease term.

Recapture clauses should be negotiated out of leases, as should all options - personal language. Leases should not give the landlord any right to make a claim upon the purchase price you received for your practice. You should try to obtain a release of liability to avoid the nightmare of a default occurring well after you have retired and are unable to take over the office.

These assignment clauses can destroy the nest egg you are building in a successful dental practice. This is why it is so important, whether you are buying a dental practice or building one from scratch, to have an attorney with experience in the dental field assist you with your lease negotiations.

The list of legal “dos” and “don’ts” for dentists astounds most of them when we sit down for an initial conference on selling, buying, relocating, leasing, or otherwise affecting the ownership of a dental practice.

It is often said that he who represents himself has a fool for a client. As the reader can tell from the points raised above, a dentist representing himself rather than utilizing an experienced dental attorney can miss issues which could make their dental practice relatively worthless. With such a valuable investment as a dental practice, it obviously is in the dentist’s best interest to retain the services of an expert in the leasing area.

Jason P. Wood, B.A., J.D. and Patrick J. Wood, B.A., J.D.

jason@dentalattorneys.com or pat@dentalattorneys.com | (800) 499-1474 | www.dentalattorneys.com

Jason is an associate attorney in the law firm of Wood & Delgado, and Patrick is the founder and senior partner of Wood & Delgado, a law firm which specializes in representing dentists for their business transaction needs. Wood & Delgado represents dentists in California, Nevada and Colorado.

How a Dentist Can Balance the Chaos - Ten Tips to Create a Better Work Life Balance

Here is another guest post from our friends at ETS Dental by Tiffany Worstell. 

I feel like I should start a support group with this introduction, but…

Hi, my name is Tiffany and I suffer from horrible work/life balance.  I work full time, am taking classes online, and I am raising two kids.  Throw into the mix household chores, two dogs, Girl Scouts, viola lessons, marching band, and a plethora of other projects going on at any given time, and you have a snapshot of my life.   Just writing this down is making me nervous.  What am I forgetting that needs to be taken care of or done tonight?!

Crazy thing about my little chaotic snapshot above is I know I am not alone. Life is crazy anymore.  Looking around my office, each one of us has a handful or two of other activities and responsibilities.  Chances are your office is the same way.  Life happens regardless of your title or position.

So, how do you balance it all?  Initially, I started looking for sites with tips, but I decided it was better to get real life answers so I took my question to my colleagues and Facebook followers.  Some answers were almost universal; some were a little more unique.  Here are some highlights….

Ten things you can do to create a better work life balance

1. Limit the amounts of time that you do work stuff at home or vice versa.
2. Use a calendar!  Scheduling events makes it easier to know what is coming up and plan accordingly.  Google Calendar is a favorite for many of those that responded.
3.  Create lists.  Do what must be done first.  Do what you do not want to do and get it out of the way.  Once something is completed, check it off and move on to the next.
4. Turn off your alerts; do not be a slave to your phone.  Check your emails on your own terms; not with every beep, buzz, or blinking light.
5. Take some time for what makes you happy: read a book, watch a movie, go for a run, exercise, or go out for a drink with a friend.
6. Find some peace.  Pray.  Meditate.  Get a massage. 
7. Get help!  This was a tough one for me, but there is no reason that my kids couldn’t straighten up the house while they are waiting for me to get home or wash the dishes from breakfast.  They even like starting dinner once in a while. 
8. Don’t be afraid to let go.  One of my Facebook friends said it best, “When I was working full time, was a full time graduate student and a single mom I achieved balance by letting go of things that do NOT last-dishes, dust and laundry.  Instead, I chose football practice, school activities and a kid flick.”
9. Say no.  I struggle with this one, but it is okay to not do everything all of the time.  If something is not important to you, let it go and focus on what needs your attention.
10. Find what works for you.  Take advantage of the time you have; I study on my lunch breaks and can knock out a good bit of my reading without interruptions which helps me immensely.  A colleague wrote, “Having the opportunity to work remotely is a huge thing for me.  It helps me not to feel guilty about going to my kids’ activities (games, etc.) and I make up my time in the evenings when they are engrossed with homework.  Sometimes they will come and hang out in my office as they do their homework and we’ll all be ‘working’ together.” 

I guess I have some pretty smart colleagues and friends!  Of course this is only a small sampling of the ideas out there; what do you to do to make your own chaos work?  I would love to hear what works for you.    

"Life is too short to wake up in the morning with regrets, so love the people who treat you right, forget about the ones who don't, and believe that everything happens for a reason. If you get a chance, take it. If it changes your life, let it. Nobody said life would be easy, they just promised it would be worth it. 
-Harvey Mackay 

Tiffany Worstell is a nationwide Recruiter for Dental Staff at ETS Dental. She can be reached at tworstell@etsdental.com or 540-491-9112. ETS Dental is a Dental Recruiting firm specializing in finding and placing General Dentists, Dental Specialists, and Dental Staff throughout the United States. www.etsdental.com