Dental Professionals Tax Deduction

The Domestic Production Activities Deduction is a deduction for manufacturers and is intended to provide tax incentives for businesses that produce goods or work in the United States rather than sending that work overseas.

As a dentist or orthodontist, how do I qualify? Is part of your revenue derived from using Cerec or CAD/CAM, or from retainers or other appliances produced in-house? If so, then you potentially qualify.

The deduction is equal to 9% of the Qualified Production Activities Income (QPAI) or taxable income if lower. The deduction also can not exceed 50% of the wages related to production activities.

For more information, contact Justin Work, CPA at 314-576-1350.

New Lessee Accounting Requirements

Does your company currently operate as a lessee under one or more leases? If so, your company’s financial statements may be affected by the impending changes made official by the Financial Accounting Standards Board (FASB) this past February.

Prior to implementation of the new standards, leased assets meeting the capital lease criteria required leased asset capitalization and a corresponding leased liability. Operating leases did not require asset capitalization and liability recognition, and all rental activity was expensed on the income statement.

Those criteria that existed to create the capital lease treatment were the following (only one had to be satisfied to be considered a capital lease):

  • Existence of a bargain purchase option for the leased asset.
  • Transfer of ownership of the leased asset to the lessee at the conclusion of the original lease term.
  • The lease term is equal to at least 75% of the useful life of the leased asset.
  • The present value of the minimum lease payments is equal to at least 90% of the fair value of the leased asset.

 

Under the new standards, most leases will require a right of use asset to be capitalized along with a leased liability on the balance sheet regardless if the lease meets the above criteria or not. Companies may elect out of the new treatment for leases of 12 months or fewer. If the election is made, the lease will be treated as an operating lease under the previous standards.

The new standards come into effect for public companies with fiscal years beginning after December 15, 2018, and for private companies with fiscal years beginning after December 15, 2019.

When to Hire an Associate for Your Dental Practice

You are working harder than ever before, but there does not seem to be enough hours in the day to get it all done. On top of that, you are potentially thinking about calling it a career and are looking for someone to take over your practice. Is it time to bring in an associate?

Overloaded Practice

If you have a general practice and are handling more than 2,000 active patients, more than likely you need an associate to help with the load. Another way to gauge the demand is to take a look at the number of weeks you’re booked ahead. If you’re booked solid more than a month in the future, it is another good indicator need some help.

Return On Investment

However, like all business decisions regarding your practice, you must evaluate the return on investment (ROI). Working with your financial advisors, you must determine the expected financial outcome for both you and your new associate. Will they be offered the potential to invest in the practice and take partial or complete ownership? Or will you bring them in as an employee?

Consider that it is not unusual for dentists brought in as employees to leave their employment to take ownership positions in other dental offices. If you are planning out an exit strategy, it is far better to offer an ownership position to your associate. The sense of ownership will engender loyalty and prevent them from leaving on a whim. Your exit strategy will be smoother and create a better foundation for the future if you can provide an ownership opportunity for your new associate.

Meeting of the Minds

However, there are several things to keep in mind. Partnerships work well when there is a work culture and personal philosophy match. Your new associate should be reasonably like-minded with your beliefs about how the practice should be run. Major philosophical differences will not end up well. It is better to know ahead of time.

In addition, you must carefully structure the financial arrangements and options of the buy-in. The financial obligations of the new associate will directly impact their cash flow. There are several ways to structure an associate’s buy-in. You should consider the individual circumstances of your practice and adjust the payment structure and investment costs, as well as important tax matters.

Missing your kids’ baseball games and dance recitals is no fun. Don’t let an overloaded practice prevent you from leading a full life. Consider adding an associate, and work closely with your financial team to make it a win-win for everyone.

Call BWTP today to discuss your practice with one of our dental accountants.  We’re happy to assist you in getting your practice finances in order!

What To Avoid When Starting A Dental Practice

tax deductions

Starting your own dental practice is an exciting venture, but it’s easy to make mistakes that can cause the practice to fail. Take this chance to learn from the mistakes of others so you can avoid making them yourself. Here are five common errors that dentists make when starting their own dental practice.

1. Hiring the Wrong People

When recruiting employees for your dental practice, look for people whose skills complement your own. For example, if you love spending time with patients but hate any kind of admin work, don’t hire someone else who has the same aversion to paperwork or your practice is likely to lack organization. Instead, choose people whose strengths match your weaknesses to ensure your practice has a good balance of skills.

2. Focusing Too Much on Numbers

Although it’s important to bring in enough business, focusing purely on the number of people visiting your practice is a mistake. In your early days, it’s vital to focus on providing a quality service. If patients have good experiences at your practice, they will tell their friends and families, naturally increasing the number of patients coming to you. Although some marketing is essential to bring in the first patients, the quality of your service should be your primary concern.

3. Neglecting Record-Keeping

When setting up any business, including a dental practice, it’s important to keep detailed records of your income and outgoings. Keep all receipts in an organized filing system so you can find them when you need to claim tax deductions on the equipment you bought. If you simply don’t have time to keep proper accounts, it might be worth hiring someone on a part-time basis to take care of this aspect of your business.

4. Burning Out

It’s easy to burn out when starting a business. Remember to take some time out from your dental practice every week to avoid it taking over your life. Turn off your phone and spend some quality time with your family or indulging in one of your favorite hobbies to refresh your mind and body.

5. Letting Failure Get You Down

Everyone makes mistakes when starting a dental practice. You’ll probably have one or two marketing campaigns that fall flat or spend too much on equipment you don’t use. Treat these mistakes as opportunities to learn and grow, rather than assuming they’re a sign that your practice is doomed.

BWTP is happy to help you with your dental practice tax and financial needs.  Call our office today to speak with a CPA!

Should I Buy or Lease My Dental Practice Space?

One of the most difficult decisions you face when operating your dental practice is choosing between buying or leasing your practice space. There are pros and cons to both options, and you must weigh them up front with care. Here are some factors to consider when deciding whether to buy or lease your office.

Upfront Costs

Buying a building usually requires you to make a down payment as a certain percentage of the purchase price. This can be a considerable outlay, especially for a small business. Leasing typically requires you to pay the equivalent of one to two months’ rent upfront. It allows you to free up working capital that you can use to grow your business.

Equity

When you purchase practice space, you acquire an asset, which builds equity and appreciates in value over time. You can also borrow against your property if the need arises. When you lease practice space, you do not build equity and, as a result, cannot borrow against your property.

Overhead Costs

Leasing practice space comes with the volatility of variable overhead costs, which can make it difficult for you to make long-term financial projections and decisions. Depending on the terms of your mortgage, buying practice space can provide you with greater cost certainty. Once you have paid off your mortgage, your practice space will be yours to sell or keep.

Flexibility

Leasing gives you the flexibility to move once your fixed-term tenancy ends. This is advantageous if you’re unable to forecast your space needs or you only plan to stay in an area for a short period of time. When you buy, you have less flexibility and may incur significant relocation costs.  Selling a building can be difficult, especially a dental office.

Property Management

Buying practice space requires you to take responsibility for property management. You must also ensure that you can afford maintenance checks, repairs and renovations. When you’re leasing, your landlord takes responsibility for property management issues. This means you can focus time and effort on running your business.  This is not always the case.  You should discuss items like maintenance, upkeep, etc. with the leasing company.  This will typically change based on where you’re renting.

Choosing between buying and leasing practice space can be a challenge, as there are many factors to consider. Careful evaluation of the pros and cons will help you to decide on the best option for you.  Discussing your situation with a BWTP CPA can take much of the headache and difficulty out of making financial decisions.  We know what it takes to be a successful dentist and are here to help you every step of the way.