Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
Summer hours are in effect: Our offices close at NOON on Fridays from May 17th to July 12th
Our offices are closed tomorrow 1/7/25 from 8am – 1pm for a firm event. Thank you.
One of the main reasons cited by dentists and dental students for pursuing a career in dentistry is the potential to be their own boss. For many, that starts with the purchase of a dental practice.
Yet, many new dentists get so focused on clinical care that they ignore the business complexities of running a practice. To ensure that you are purchasing a practice that makes financial sense, consider these key areas of due diligence:
Market area — Who will be your competition within 1 mile, 5 miles and 10 miles of the practice? Just as important, are the demographics of the area appropriate for the type of dentistry you wish to practice? For example, if you are interested in emphasizing aesthetic and complex restorative dentistry, you’ll want to practice in a community where the demographics will support it.
Patient characteristics — Are most of the patients returning patients or are there a lot of “one-offs” on the books? How about the ratio of patients with dental insurance to fee-for-service patients?
Growth potential — Assume you analyzed several years of a potential practice’s production reports and saw that the majority of perio and endo services have been referred out. Depending on your personal skill set and comfort level, offering these services in-house might create excellent growth opportunities.
Equipment — If not already in place, it could cost tens of thousands of dollars to upgrade a low-tech practice with technology such as digital radiography, a high-end intraoral camera system and a robust Electronic Dental Records System. On the other hand, if the technology is already in place, how much will it cost to maintain the equipment annually?
Current financials — Have you been able to obtain at least three years of prior tax returns and financial statements? Is the revenue and net profit trending upward or do you see a drop off? Be wary if the seller has not been completely transparent and answered all of your questions in a satisfactory manner.
Financing — In addition to borrowing for the purchase price, you might need to borrow additional funds to support cash flow needs as collections ramp up (it may take time to get revenue flowing, but expenses start immediately).
Cash flow —Your lender will want to see a forecast of cash flow for at least five years. If you can, break the numbers out on a monthly basis for at least the first two years, and then on an annual basis for years 3 – 5. Of course, one of the benefits of purchasing an established practice is that you are purchasing an established income stream.
Structure of the purchase agreement — What exactly are you buying? With an asset sale, you are purchasing the agreed-upon assets of the practice. With a business sale, you are purchasing the owner’s equity in the practice and are, essentially, stepping into the ownership shoes of the seller — liabilities and all.
Allocation of purchase price — Will you and the seller be able to reach an agreement on how to allocate the purchase price between goodwill and assets eligible for accelerated depreciation? This will require some negotiating between both parties.
Acquiring a dental practice is a major step — one that requires some guidance. Our firm can help you with the financial aspects and planning you need to start out on solid footing. We have the experience to help set up new business ventures as well as structuring the purchase of an existing business.
As we approach year-end, one of the earliest business tax reporting tasks that must be completed is preparation of information returns known as Forms 1099. The purpose of Forms 1099 is for businesses to report to the IRS various items of income and deduction for a recipient. The IRS will match the information received on these forms to recipients’ tax returns, and if there is a discrepancy, the IRS will contact the taxpayer regarding the discrepancy.
Form 1099-MISC is the most common 1099 prepared by businesses. This Form reports payments made in the course of a trade or business to individuals and unincorporated businesses that do not constitute wages. The most common types of payments reported are royalty payments or payments to independent contractors for services or work. Below is a list of payments made by businesses that must be reported to recipients on Form 1099-MISC:
NOTE: The exemption from issuing Form 1099-MISC to a corporation does not apply to payments for legal services provided by corporations or for payments for medical or health care services provided by corporations.
Link to example Form 1099-MISC: www.irs.gov/pub/irs-pdf/f1099msc.pdf
Link to IRS instructions for preparation of Form 1099-MISC: www.irs.gov/pub/irs-pdf/i1099msc.pdf
Preparation of the actual Forms 1099-MISC is not difficult. But the determination of which vendors, service providers or other payees must receive a 1099-MISC, as well as gathering and summarizing all of the information that must be reported,can be time consuming.
In order to prepare Forms 1099-MISC, businesses must gather or summarize the following information for each 1099 recipient each year:
We recommend that businesses obtain the first two items of information each year on Form W-9 (http://www.irs.gov/pub/irs-pdf/fw9.pdf) for each recipient before the first payment of the year is issued to the recipient. The payment information can be automatically summarized in accounting software programs or can be summarized from detailed reports by payee.
Generally a copy of Form 1099-MISC must be furnished to a recipient by January 31st of the year following the reporting year. Accordingly, for 2015 reporting, Forms 1099-MISC should be mailed to recipients by February 1, 2016 because the due date falls on a Sunday. If, however, amounts are reported to 1099-MISC recipients in box 8 (Substitute payments in lieu of dividends or interest) or box 14 (Gross proceeds paid to an attorney), copies must be mailed to recipients by February 16, 2016.
Businesses that submit less than 250 of any one type of information returns can file paper Forms 1099. If a business files paper forms, specially prescribed forms must be used so that the paper forms submitted can be read by IRS optical character recognition (OCR) equipment. Most office supply stores sell the specially prescribed Forms 1099. (Do not attempt to download and print Form 1099 from the IRS website!) Failure to use the specially prescribed forms could subject the filer to a penalty of up to $100 per form.
Forms 1099 submitted on paper must be mailed to the IRS on or before February 29th of the year following the reporting year. Forms 1099 filers should submit copy A of Forms 1099 along with Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) to the IRS at the address listed on Form 1096, based on the principal business location of the filer. Form 1096 is also a specially prescribed form and can also be purchased at office supply stores.
Businesses that must submit more than 250 of any type of information returns must file electronically using a system called FIRE (Filing Information Returns Electronically). The FIRE system is accessed via the Internet at https://fire.irs.gov/firev1r/default.aspx. Users must have software that can produce a file in the proper format according to IRS Publication 1220. Businesses required to submit Forms 1099 electronically generally must obtain IRS approval to do so by submitting Form 4419 – Application of Filing Information Returns Electronically at least 45 days before the due date of the returns. The due date for filing 2015 electronic Forms 1099 is March 31, 2016.
The Internal Revenue Code includes penalties that may apply to businesses required to file Forms 1099. The penalties are applied, unless due to reasonable cause, for:
Generally, the penalties imposed are from $30 per return to $250 per return, depending on the type of failure and how soon the errors are corrected. There is a de minimis exception for returns that failed to include required information or include incorrect information if there was timely filing of information returns and if all errors are corrected by August 1st of the year following the reporting year.
Stockman Kast Ryan + CO is here to help you with this year-end task. We can prepare Forms 1099-MISC for you or we can train you and/or your staff to not only prepare the 2015 Forms 1099-MISC but also assist with a jump start on the 2016 1099-MISC preparation process. We can assist with 1099 QuickBooks mapping and with implementation of procedures to gather and summarize all of the information required to file accurate 1099s as tax year 2016 progresses.
As the end of the year approaches, it is clear that tax planning will be no less complicated than in recent years. Several tax breaks that had expired were extended through the end of 2014, but there is no crystal ball for what Congress will do this year. Fortunately, although there are some year-end tax planning strategies that can’t be implemented until after tax legislation is signed into law, there are still many that can be implemented now.
Year-end tax planning for businesses often focuses on acquiring equipment, machinery, vehicles or other qualifying assets to take advantage of enhanced depreciation tax breaks. Unfortunately, the following breaks were among those that expired on December 31, 2014:
Enhanced Section 179 expensing election. Before 2015, Sec. 179 permitted businesses to immediately deduct, rather than depreciate, up to $500,000 in qualified new or used assets. The deduction was phased out, on a dollar-for-dollar basis, to the extent qualified asset purchases for the year exceeded $2 million. Because Congress failed to extend the enhanced election beyond 2014, these limits have dropped to only $25,000 and $200,000, respectively.
50% bonus depreciation. Also expiring at the end of 2014, this provision allowed businesses to claim an additional first-year depreciation deduction equal to 50% of qualified asset costs. Bonus depreciation generally was available for new (not used) tangible assets with a recovery period of 20 years or less, as well as for off-the-shelf software. Currently, it’s unavailable for 2015 (with limited exceptions).
Lawmakers may restore enhanced expensing and bonus depreciation retroactively to the beginning of 2015, but they probably won’t take any action until late in the year. In the meantime, how should you handle qualified asset purchases?
Keep in mind that, to take advantage of depreciation tax breaks on your 2015 tax return, you’ll need to place assets in service by the end of the year. Paying for them this year isn’t enough.
Other expired tax provisions to keep an eye on include the research credit, the Work Opportunity credit, Empowerment Zone incentives and a variety of energy-related tax breaks.
As always, consider traditional year-end planning strategies, such as deferring income to 2016 and accelerating deductible expenses into 2015. If your business uses the cash method of accounting, you may be able to defer income by delaying invoices until late in the year or accelerate deductions by paying certain expenses in advance.
If your business uses the accrual method of accounting, you may be able to defer the tax on certain advance payments you receive this year. You may also be able to deduct year-end bonuses accrued in 2015 even if they aren’t paid until 2016 (provided they’re paid within 2½ months after the end of the tax year).
But deferring income and accelerating deductions isn’t the best strategy in all circumstances. If you expect your business’s marginal tax rate to be higher next year, you may be better off accelerating income into 2015 and deferring deductions to 2016. This strategy will increase your 2015 tax bill, but it can reduce your overall tax liability for the two-year period.
Finally, consider switching your tax accounting method from accrual to cash or vice versa if your business is eligible and doing so will lower your tax bill.
Something else to think about on the tax front as we approach year end is the upcoming deadline for the Affordable Care Act’s information reporting provisions for applicable large employers (ALEs). ALEs — generally those with at least 50 full-time employees or the equivalent — must report to the IRS information about what health care coverage, if any, they offered to full-time employees.
The reporting deadline is February 28 (March 31, if filed electronically) of the year following the calendar year to which the reporting relates. Smaller employers that are self-insured or part of a “controlled group” ALE will also have reporting obligations.
With the deadline approaching, now is the time for affected employers to begin assembling the necessary information. The compliance obligation will likely require a joint effort by the payroll, HR and benefits departments to collect the relevant data.
The IRS has developed new forms for this type of information reporting: Form 1094-C, “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns,” and Form 1095-C, “Employer-Provided Health Insurance Offer and Coverage.” (A non-ALE self-insured employer should file Forms 1094-B and 1095-B.)
Uncertainty over expired tax breaks has been an issue with year-end tax planning for the past few years. Nevertheless, most steps to reduce your 2015 tax bill must be taken before year end. We can guide you through the uncertainty by helping you to implement the strategies available today and to be in a position to act quickly when tax legislation is signed into law.
Second in a series.
So, you’ve landed that first big job out of residency or dental school. All the long hours and training have paid off, and you’re finally enjoying a rewarding salary and benefits.
The trick now is to make some smart moves to maximize the value of your new status as an employed physician or dentist. Here’s how:
The overall value of benefits packages can add up to 36 percent of pay for health care providers, according to data from HR consulting firm Towers Watson. But to take full advantage of your benefits package, you’ll need to understand the scope and effective date of each benefit. Does disability insurance provide long-term coverage — or only short-term? If your employer has provided an allowance for continuing education, when and how can it be used? Likewise, are paid vacation days a use-it-or-lose-it proposition, or can unused days be banked?
Unreimbursed business expenses generally will not provide a tax benefit, since you can only claim expenses that are more than 2 percent of your adjusted gross income. So make sure that your employer pays for — or that you are reimbursed for – things like office equipment and supplies, professional dues, medical equipment, and business meals and entertainment.
Employed physicians and dentists should sign up for their employer’s 401(k) as soon as they are eligible and start contributing on a monthly basis — at least enough to receive any employer match. The trick is to start early and let the incredibly powerful effect of compounding work in your favor.
Of course, any contributions to the company retirement plan should be balanced against the need to pay down debt. Review all your debt, interest rates and due dates. Here, it’s important to review your options for refinancing credit card debt and school loans. Ultimately, you’ll want to prioritize debt reduction so that the highest-rate, non-deductible interest is paid off first.
Employer-provided disability coverage may leave dangerous gaps. Review coverage with an experienced agent and consider beefing up coverage with policy riders to ensure that you obtain benefits specific to your needs and for as long as possible. Common riders include coverage for own occupation, residual disability and future purchase options.
Insurance experts suggest you carry life insurance benefits equivalent to at least five times your annual income, and in some cases as much as nine times. Of course, early career is the ideal time to lock in long-term life insurance since you are young and healthy. If your employer-sponsored policy is not sufficient, consider increasing coverage.
Make sure you understand the policy limits. Is it “claims made” or “occurrence made”? Likewise, determine if tail coverage is provided if employment ends.
Finally, protect yourself against non-occupation-related liability. Typically, that entails increasing the liability limits on your personal insurance policies (e.g., homeowners, auto, boat, etc.) and then adding on an “umbrella policy”.
In the end, understanding the issues and economics of employment can help providers make wise choices. Contact our office for assistance with “running the numbers” and evaluating your options as an employed physician or dental professional.
First in a series.Many dentists and physicians just entering professional practice face a mountain of debt. The Medscape Resident Salary & Debt Report 2014 notes that 36 percent of residents had more than $200,000 of education debt.
Add in a mortgage, a car loan, credit card debt and financing to start or buy into a practice, and you could easily find yourself burdened by more than $1 million of debt — debt that will impact your finances for years to come.
With this in mind, it’s critical to establish a plan for managing debt — and to develop some sound financial habits for the future.
Consider a recent dental school grad with $200,000 in student loans. At a fixed rate of 3.8 percent over 15 years, our new dentist would be writing a check for $1,459 every month, and wind up paying $62,694 in interest over the life of the loan. But if she decided to pay down this debt by increasing payments to $2,500 a month, the loan would be paid off in nearly half the time — seven years and eight months — and save $31,697 in interest.
If paying down debt is a priority for you, consider these two popular methods for tackling repayment:
1. The Snowball Method — Start by paying off the debt with the lowest principle balance. To the extent that your budget allows, begin making extra loan payments. At the same time, make the minimum payment on other debts. Once the target debt is paid off, take the amount you were paying on that debt and apply all of it to your debt with the next lowest principle balance. Keep doing this until all debts are paid. This debt reduction method is popular because it provides “quick wins” and encouragement and momentum to borrowers.
2. The Avalanche Method — Here, you pick the highest-interest-rate debt to pay off first — again, making the minimum payment on other debts. Once done, you then apply those payments to the next debt in line. Work your way downhill like an avalanche to the lowest-rate debt. Note that you’ll want to prioritize debt reduction so that the highest rate non-deductible interest is paid off earliest (e.g., student loans or credit card debt versus a loan for practice acquisition). The avalanche method is the preferable method because this method reduces interest expense on the highest interest rate loans first.
Medical and dental professionals with good credit scores and professional incomes are desirable customers for private lenders who may be willing to consolidate student or other loans at lower interest rates than federal loans. Just be sure to compare lenders’ origination and closing fees with the same diligence that you compare interest rates and loan terms.
Consider following the tried-and-true rule of thumb: Keep your monthly debt commitments below 35 percent of your monthly income before taxes and other deductions (maybe even shoot for 25 or 30 percent). It’s helpful to perform a regular review of your personal finances, including income tax planning, with a qualified CPA.
Next up: Smart Moves for Newly Employed Physicians and Dentists
Every day, some 10,000 baby boomers turn 65. At that rate, the day may soon come when a baby boomer physician is ready to retire from your practice.
Ideally, everything from required notifications to payout of deferred compensation will be spelled out in a partnership agreement or employment contract. But you’ll still want to take steps to ensure a smooth transition in patient care and minimize disruption to the practice. Here’s how:
1. Review contracts. Review any legal agreements that the retiring physician is party to — equipment and building leases, bank notes and any shareholders’ agreement (for practices structured as a corporation) or operating agreement (for LLCs).
2. Develop a plan for patient notification. To avoid charges of patient abandonment, physicians must scrupulously adhere to state and federal guidelines regarding patient notification — including, in some cases, publishing notices in the newspaper. The practice can do its part by displaying announcements in the waiting room and adding a message to its voice mail system informing patients of a physician’s departure.
3. Notify third parties. Your state licensing board, the Drug Enforcement Administration, third-party payers and your malpractice carrier will all need to be notified of the change in status. While the individual doctor may do some of this legwork, it's ultimately the practice's responsibility to make sure that everyone is properly notified.
4. Think through capacity. Switching patients to other physicians in the group is certainly an option if the practice has the capacity. But if you’re planning to replace a retiring physician, consider whether you’ll need to bring in a locum tenens or tap a local physician to cover until you are able to recruit the right provider.
5. Evaluate malpractice coverage. “Tail coverage” may be necessary to cover any claims filed against a retired physician for treatment that a physician provided while employed at the practice (especially if he or she has previously been insured on a “claims made” basis). The employment or shareholder’s agreement should spell out exactly who is responsible for procuring the coverage, and the party securing the coverage should provide a certificate of insurance to the other party.
6. Make plans for records. Ultimately, physicians own their patient’s records and are responsible for archiving them. But to ease the transition, the departing physician can authorize the practice manager to coordinate patient access to their medical records and/or facilitate transfer records to other physicians. Physicians will also need to check with their Electronic Medical Record (EMR) vendor on policies for retrieving and archiving their particular electronic health records.
7. Address IT issues. A physician’s departure also requires dotting the technology I’s and crossing the T’s. This could be as basic as changing passwords and login credentials, or it could mean modifying contracts for scheduling, billing and/or EMR software.
To bring some order to the process, some practices negotiate a formal separation agreement with departing physicians to clarify and solidify the terms of departure, including the settlement of any money owed. The key to a smooth transition is to create a transition plan well before the retiring physician’s departure — some practice consultants say as much as 18-24 months in advance.
Your practice has grown to the point that same-day appointment slots have all but disappeared. Your established patients are requiring more time and attention than you can comfortably provide, and new patients are being turned away. Big picture: you're losing revenue and risking the loss of patients to other practices.
The active involvement of a physician owner is ultimately the most effective control against fraud. However, in the current demanding environment for physicians and dentists, the reality is that this responsibility may need to be delegated to a practice manager.
Tip: Throw away all signature stamps!
As professional advisors, one of our greatest concerns is employee theft in the practice. Medical and dental practices may be more vulnerable to theft because, understandably, the owners are so focused on treating patients rather than managing the business. That’s why they often delegate management responsibilities to practice managers, making the practice manager responsible for implementing proper safeguards and internal controls.