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Dental Accounting | Claim Financial Freedom

Dental CPAs

Whether you’re starting a new practice or have been an owner dentist for years, the financial stress that can come from being a business owner can sometimes overwhelm even the most seasoned professionals. Our goal is to help you achieve complete financial freedom so that financial worries don’t interfere with your ability to work well.

Below are some tips you can follow on your own to help build a rock-solid foundation for your practice. Staying organized and up-to-date with your financials allows you to focus on delivering quality care to your patients. Contact our firm today to learn how we can help!

1. Have a plan. As the popular saying goes, “failing to plan is planning to fail.” In order to see true success, you’ll need to have both short and long-term plans for your practice. How will you allocate new earnings? How is your practice prepared to deal with slow seasons? How are you budgeting for new purchases? If you don’t already have answers to these questions, they could be a great place to start. Planning for the unexpected can help safeguard your profitability from being derailed by unforeseen expenses.

2. Set goals. Don’t be afraid to dream big. Your practice will only be as successful as you make it. Setting goals allows you to have a clear yardstick to measure your success against and can help you make better financial choices in the present. By recognizing the simple truth that every small decision you make now can have a huge impact on the future, you’ll be able to start setting yourself up for success. Your future self with thank you.

3. Be Smart. When starting or growing your business, there can be benefits to taking on strategic debt. However, doing so in a manner that will benefit, rather than hinder your growth requires an understanding of the returns you can expect on your investment. Don’t jump into big purchases without a plan, rather weigh the potential benefits and risks of all your financial decisions.

4. Get Organized. Disorganization can be a killer for any business. In order to ensure you’re not letting anything important slip through the cracks, it’s important to have systems in place that will guarantee nothing is missed. In addition to protecting you from unforeseen troubles, efficient organization can also help bring opportunities for improvement to light. Whether it’s money that could be saved or resources that could be conserved, understanding the ins and outs of your financials can help you to understand exactly how your money is being used.

If you feel that you could improve in any of these areas, our firm is here to help! Our goal is to make the process of managing and running your practice as simple as possible, allowing you to focus on delivering quality work to your patients and growing your business. Contact us today to learn more.

ADCPA | Academy of Dental CPAs

25 Interesting Facts About Taxes | Dental CPA

1)     The word “Tax” comes from the Latin “Taxo” which means “I estimate”.

2)     The Federal tax code was 400 pages in 1913 – in 2010…it was 70,000 pages

3)     The number of words in “Atlas Shrugged” is 645,000. The Bible has approximately 700,000 words. The number of words in the Federal Tax Code is 3,700,000.

4)     While every person who earns a paycheck pays Federal Income Tax, only 43 of 50 states charge their citizens income tax. The states that do not have income tax are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

5)     The IRS is a U.S. government agency that is responsible for collecting taxes and enforcing revenue laws. It is part of the U.S. Department of the Treasury.

6)     Over 1 million accountants are hired each year in America to help with taxes.

7)     In 1691, England taxed the number of windows on a house. As a result, people built houses with very few windows and even boarded up existing windows. This caused nationwide health issues due to lack of airflow and eventually ended in the tax being repealed in 1851.

8)     Emperor Peter the Great of Russia put a tax on beards in 1705.  He hoped this would encourage men to be clean shaved – a look that had become popular in Western Europe.

9)     The word “accountant” is from the French word “compter”, which means “to count or score”.

10)  England has a tax on television. Color TVs are taxed more than black-and-white TVs.  However, if a blind person has a television, he or she pays only half the tax.

11)  Disposable diapers are subject to sales tax in Wisconsin, but cloth diapers are not.

12)  In Texas, cowboy boots are exempt from sales tax.

13)  The Federal form 1040, was introduced in 1913. It was required of any U.S. permanent resident with a net income of $3,000 or more and was only three pages.

14)  Albert Einstein is quoted as saying: “The hardest thing in the world to understand is the income tax.”

15)  Alabama is the only state in the United States to have a playing card tax (10 cents). On the flip side, Nevada gives a free deck of cards with every tax return filed.

16)  The IRS provided approximately $416 billion in refunds in 2011.

17)  WWII led to the creation of the Bureau of Internal Revenue. This later became the IRS, which is the world’s largest accounting and tax-collection organization.

18)  One of the most significant relics of Egyptian history, the Rosetta stone, is actually a tax-related document. It was so important that it was written in three languages.

19)  According to some historians, plane geometry was actually invented by tax collectors and not Euclid (the famous Greek mathematician) in order to determine land size for harvest tax.

20)  In 1787, U.S. citizens could only vote if they were taxpayers.

21)  Newspapers use large sheets of paper because of the “knowledge tax”. In 1816 the British taxed newspapers per page, resulting in them using larger paper to add more content and shorten the number of pages.

22)  There is no known civilization that did not have taxes. The very first civilization, the Sumerians, recorded their tax records on clay cones.

23)  Since 2001, there have been more than 4,500 changes to the tax code.

24)  Taxpayers lose out on millions by not filing returns – tax payers gave up $950 million in refunds in 2012.

25)  More than one-fifth of paper tax returns contain an error.

ADCPA | Academy of Dental CPAs

Dental CPAs | 5 Signs You NEED an Accountant

Dental Accounting

Have you wondered whether you actually need to have a professional accountant? Here are 5 signs that confirm you do:

1)     You earn over $200,000 per year – Your odds of being audited once you start earning over $200,000 a year increases to nearly 4%. While this may not seem like a large number, it’s actually an increase of over 300%. Having your financials in order in case this does occur is vitally important once you become a high-earner.

2)     You are a business owner or are self-employed – Utilizing the services of an accounting professional is vitally important for any business owner or entrepreneur. Tax laws change annually. The current US tax code has over 7 million words in it. Making sure all of your deductions are included, your assets are depreciating properly, and you are maximizing your tax savings will wind up saving you money in the long run.

3)     You are setting money aside for others – When putting money aside for your children, grandchildren, or anyone you want to take care of, it’s very important to use a financial professional to decide which vehicles to use for tax-deferred or tax-free savings. This includes college savings plans or trusts.

4)     You are incurring large capital gains tax – The key to success in paying big capital gains tax is paying at long-term rates. An accountant can help you with a Qualified Small Business Tax Credit, minimize your taxes, and help you set long-term payment goals.

5)     You are experiencing rapid growth in your business – Not only is keeping your finances up to date time-consuming, it’s also complicated. When you’re experiencing rapid growth, it’s time to call in an accounting professional. Having more customers, employees, and vendors is going to require more paperwork and number crunching and can rapidly become impossible for you to manage.

Don’t Overlook Your Section 199 Domestic Production Activities Tax Deduction

ScheinIf you have CAD/CAM equipment in your practice, you should be sure to calculate your potential section 199 tax deduction. The tax savings could be significant!

The Section 199 deduction (also referred to as the domestic manufacturing deduction, U.S. production activities deduction, and domestic production deduction) is a tax break for businesses that perform domestic manufacturing. It was established by the American Jobs Creation Act of 2004 in an effort to help create jobs, reduce foreign outsourcing, and make domestic manufacturers more competitive.

The deduction was phased in starting in 2004 with a 3% deduction on qualified production activity income, and has now graduated to a 9% deduction as of 2010.

There are three different ways to calculate the deduction:

The Section 861 Method – This method requires that you separate all revenue streams by type, then allocate all expenses by both revenue stream and location of the expense incurred. This would be VERY time consuming for the typical dentist, and would negate much of the benefit of the deduction.

The Small Business Simplified Overall Method – This is the simplest method, but would rarely produce the maximum tax deduction for a dental practice. Under this method, total practice deductions are ratably apportioned between manufacturing revenue and non-manufacturing revenue based the relative ratio to gross receipts. For example, assume a practice has annual collections of $1,000,000 and total expenses of $700,000 for a net income of $300,000. If revenue from manufacturing crowns is $200,000 (20% of collections), then the expenses allocated to manufacturing are $140,000 ($700,000 X 20%). The Qualified Domestic Production Income of $60,000 ($200,000 – $140,000) times 9%, then yields a section 199 deduction of $5,400.

The Simplified Deduction Method – Under this method, the cost of the crowns milled, or items manufactured, must be calculated, but all other expenses can be ratably apportioned using the same percentage calculation in method 2. To calculate the cost of the crowns, you must calculate the portion of W2 wages that should be allocated directly to the time spent deriving that revenue. You also have to calculate the actual direct costs of the crown, or other items manufactured. For example, assume the same practice above. Also assume that they did 200 crowns that were manufactured in house. If the expenses for the ceramic blocks, milling coolant, diamond milling burrs, glaze, stain, cement, etc. totaled $7,500, and the chairside assistant’s W2 wages for the year were $30,000, with 15% of her time spent assisting during those crown procedures, then direct labor costs were $4,500, and total direct manufacturing costs were $12,000 $($7,500 + $4,500). The rest of the practice overhead would be allocated by the same 20% above. This method then yields a section 199 deduction of $10,422. (See the chart that follows)

Since there have been no IRS court cases involving dentists who took the manufacturing deduction, and were challenged, there is no clear guidance or guarantee that this interpretation of the rules would be supported under audit.

But given the broad definition the IRS has been following for other industries, it seems clear that using your PlanScan system to manufacture ceramic crowns, inlays, onlays and veneers would qualify.

I’ve heard from other aggressive dentists that they feel that there are many other potential manufacturing income procedures. They have taken the position that exposing an un-exposed film to X-rays, in order to create a custom image, constitutes manufacturing. Some felt that bending straight wires in to arched wires for ortho treatment constituted manufacturing income.

But when you look back at the original intent of the law, it’s not clear that those activities would have ever been easy to outsource to a foreign supplier, or activities that the dentist wasn’t already doing as part of treatment; whereas investing in CAD/CAM technology, and avoiding the potential of outsourcing to a foreign dental lab clearly align with the intent of the law.

So talk to your tax professional about the activities in your practice that do qualify as manufacturing, but don’t overlook the possible tax savings from section 199.