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Estate Tax Increases Could Decay Your Future Plans

Estate Tax IncreasesJust like you warn your patients about tooth decay, my job as an accountant is to warn you and inform you about potential decay that could impact your personal finances. Back in April, the Obama administration announced its proposed 2014 fiscal budget, and there were a few surprises in the proposal. According to the budget proposal, there’s a possibility that estate tax levels could return to what they were in 2009 by the year 2018. So what does this mean?

  • The exemption could be reduced from $5.25 million (today’s inflation indexed level) to $3.5 million (a non-inflation indexed level).
  • The top estate tax could move from 40 percent (the current level) to a maximum of 45 percent.

What Do Potential Estate Tax Increases Mean To You and Your Dental Practice? 

Now that there’s the possibility the exemption level could decrease—pretty dramatically, I might add—you are at risk for hitting these levels pretty quickly. Your “estate” is not just the value of your dental practice. It is also the value of your building (if you own your building) and other assets you own. And when you add the value of all of those items together, you’re probably close if not past the $3.5 million mark. And after you pass the $3.5 million mark, you could be paying hefty taxes on anything beyond that. So how can you prepare for these increases without feeling the effects?

  1. If you haven’t done so, start to put together a succession plan now. Do you have a business exit strategy? If not, it would be good for you to start developing one.
  2. Consider giving pieces of taxable estate, including your building, to your children. This could help lower the value of your estate.

Dental Practice Valuation Help 

If you are unsure of what your practice is worth, there’s no time better than now to get a handle on it. With the potential for these tax increases, it’s critical that you know and understand what your practice is worth, and what you can do to minimize any tax implications. If you’re at a point where you don’t know your estate value, contact Rea & Associates. Our team of adept and talented Dental CPAs can help you determine what your practice is worth and help you avoid any potential tax pitfalls.

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A 401(k) Plan and Your Dental Practice

Dental Practicde 401k PlanJust like any other employer, you probably offer your dental practice employees a 401(k) plan. This is a great “benefit” for employees, as many have retirement on their minds. As the owner of your dental practice, you are responsible for your practice’s 401(k) plan and how it is managed. That means within reason (and the law), you make some of the rules and there are also some that you must follow.

401(k) Distributions—Good or Bad?

Some 401(k) plans give employees the option to take a 401(k) loan, or an early distribution. That means if they have a need for cash sooner than later, they can take a specific amount of money out of their 401(k) and use it toward their need. Needs may include caring for a family member, purchasing a house or paying off medical expenses. However, many plans impose a penalty for an early distribution, and many plans are structured where the individual has to pay taxes on their distribution. As you can begin to see, there are several considerations to be made before allowing early distributions.

Issues That A Loan Policy Can Create For A Dental Practice    

To govern a 401(k) plan, many businesses develop a loan policy. A loan policy outlines what is acceptable in regards to allowing a 401(k) loan, or an early distribution. There are several risks that a dental practice takes on if its 401(k) plans allows these distributions. The following are some risks:

  • The employee borrows too much money than they can actually afford to pay back.
  • An employee gets behind in their payments, or they never start their payments to repay their loan.
  • The loan term is too long.
  • Payments are voluntarily suspended or discontinued. If your employee can no longer afford to make payments, you may not stop their withholding for a temporary or permanent basis. The employee’s loan is still considered an asset of your dental practice’s overall 401(k) plan. If this happens, a plan asset decreases in value.

401(k) Recommendations For Dental Practices

 If you have a small staff and also offer a 401(k) plan to your employees, allowing your employees to take 401(k) loans may not be worth your time, or the financial burden that it could create for you and your practice. Furthermore, creating a loan policy is worth your effort. 401(k) plans are highly regulated by the IRS, and the last thing you and your practice needs is 401(k) issues with the IRS.

401(k) Help For Dental Practices

If you need help managing your 401(k) plan, or need assistance in figuring out how to solve 401(k) plan issues, contact Rea & Associates. Our team of Dental CPAs has the knowledge to help you figure out where you need to be as it relates to your dental practice’s 401(k) plan.

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What To Consider When Purchasing A Dental Practice

Purchasing a Dental PracticeCongratulations! You’re at a point in your dental career where you’ve decided to purchase a dental practice. This is a big, exciting step for you, but you may also find it a bit daunting and overwhelming. And that’s very understandable. You may have a lot running through your mind, but take a step back and consider first things first.

Setting Dental Practice Goals

Before you even start to look at dental practices to purchase, you should sit down and list out goals. What do you envision for your dental practice? What do you want your dental practice to become? Here’s a list of some items to consider when setting your goals:

  • What size of practice do you want? Do you want a large client base, or a small client base?
  • How much revenue do you want/need to bring in?
  • What kind of patient demographics do you want to serve?
  • How large of staff would you like to start out with?
  • Where do you want your dental practice to be located?
  • Do you want state-of-the-art equipment in your practice, or would you settle for less modern equipment?
  • How flexible do you want your schedule to be?
  • How long do you plan to own your practice?

Once you have a clear vision and understanding of what you want your dental practice to look like, you’ll have a better idea of what you need to consider as you select your dental practice.

Three Key Considerations When Purchasing a Dental Practice

Of course, you want to find a practice that is successful, thriving and has long-lasting vitality. But there are a few other areas you should consider as well. Consider the following:

1.) What is the dental practice’s profit margin?

You may be asking yourself, “What is profit margin?” It’s probably not something your professors covered in dental school. Profit margin is a way you can measure the profitability of a company. In this instance, you should figure out what the practice’s net profit divided by its revenue is, and multiply by 100 to get a percentage. This calculation will provide you with the practice’s profit margin. The better the profit margin a practice has, the better you’ll be able to manage the practice’s debt and provide for you and your family.

2.) Where is the dental practice located?

If a dental practice is in the middle of nowhere, but your goal is to have a large client base, you might not want to consider purchasing it. Likewise, you might not want to purchase a dental practice located in the heart of a thriving metropolis if you want a small client base. A good way to get a solid picture of a dental practice’s location is to have a demographic study conducted. This will provide you with statistics that you can use when comparing multiple dental practices.

3.) What is the size of the patient base?

If your goal is to maintain a large client base at your dental practice, then purchasing a dental practice with a small client base might not be the best approach. At the heart of this consideration is the amount of revenue you need to bring in. The smaller a client base, the less revenue you will bring in. Depending on your revenue goals, the size of the patient base can be critical.

Dental Practice Business Help 

Purchasing a dental practice is a huge undertaking, and can be quite a challenge. It can also be a very rewarding experience. Don’t go it alone. Contact Rea & Associates. Our team of Dental CPAs has helped many clients in purchasing dental practices, and we’d love to help you realize your dreams of owning your own practice.

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Bye, Bye Money: Reporting Unclaimed Property

Reporting Unclaimed Property/FundsWe’ve all probably seen those very large inserts in the newspaper that list hundreds, if not thousands, of individuals who have unclaimed property. Maybe you have even been on that list. Have you ever wondered how someone’s name gets on that list? If you don’t know by now, you should.

So what is considered unclaimed property? The National Association of Unclaimed Property Administrators (NAUPA) defines unclaimed property, also known as unclaimed funds, as “accounts in financial institutions or companies that have had no activity generated or contact with the owner for one year or a longer period”. Now, while your dental practice obviously isn’t a financial institution, it is considered a company that is required by law each year to report any unclaimed funds.

Identify Unclaimed Funds at Your Dental Practice

At this point, you may be wondering what would be considered an unclaimed fund at your dental practice. Have you ever had a situation where you’ve needed to credit one of your patient’s accounts? In the past year, has that patient ever used that credit? Or have you had to issue a refund check to a patient? Do you know if that check has ever been cashed?

If you haven’t taken a close look at your books in a while, then it’s time for you to review your records to identify any dormant accounts. Your accounts receivable reports should be able to help you identify patients that have credit balances. If you find account balances that haven’t been touched for a year or more, then you more than likely have an instance of an unclaimed fund. If you discover that the patient is no longer a current patient, you should immediately issue a refund check to that patient. If that check never is cashed, then it’s definitely a situation of an unclaimed fund. But that doesn’t mean that your dental practice gets to keep that money.

What about a payroll check that has never been cashed? The same requirements apply. A payroll check that hasn’t been cashed is also considered an unclaimed fund. All businesses, including dental practices, which operate in the United States or hold funds owed to U.S. citizens, are required to file an Annual Report of Unclaimed Funds with their respective state.

How To Report Unclaimed Funds 

Each state has an unclaimed property program, and each program has its own policy in regards to reporting these funds. You can learn more about the unclaimed funds reporting policies in your state by visiting the NAUPA website. Click on the state you need the policy for, and you’ll be directed to that state’s unclaimed policy division website.

What If I Don’t Have Unclaimed Funds? 

If after reviewing your accounts receivable records you find you have no unclaimed funds, that doesn’t mean you’re off the hook for reporting. You are still required to submit an Annual Report of Unclaimed Funds—you’ll just indicate that you have no unclaimed funds.

Each state has its own reporting deadlines, so be sure to check out what your state requires at the link above. If you don’t report, or don’t report by the deadline, you may face penalties.

Unclaimed Funds Help

Not sure where to start with figuring out if your dental practice has unclaimed funds? Then, contact Rea & Associates. Our team of bright, knowledgeable Dental CPAs can help you look through your accounts receivable records and identify any unclaimed funds you may need to report. Our diverse team also has knowledge of various states’ policies on unclaimed funds. So no matter what state you’re located in, we can help.

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Rea & Associates, Inc. | Bright Dental CPAs | 7201 Center St, Mentor, Ohio 44060-4858
phone + 440-266-0077