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Could a Crown be a Tax Deduction?

dental instrumentsAs a dentist, I am sure you never thought of yourself as a manufacturer. However, if you are producing crowns at your dental practice you could be. Using CEREC™ or other CAD/CAM technology to build crowns is considered manufacturing equipment and qualifies for a Domestic Production Activity Deduction (DPAD).

What is the Domestic Production Activity Deduction?

Simply explained, DPAD is the production or manufacturing of tangible property within the United States. A crown would be considered tangible property if it’s produced or manufactured at your dental office. This would not be a tax credit, but a 9 percent deduction of the next income from the crown production once related costs are removed.

How does crown production qualify as manufacturing?

In most cases, you are probably creating the crown while your dental patient is sitting in the chair. It is quicker and more efficient than taking an impression and sending it to a lab to create the crown there. This is called milling and according to the IRS, it’s a manufacturing process.

How to determine if you qualify for the Domestic Production Activity Deduction?

Are you are unsure if you qualify for the Domestic Production Activity Deduction? Contact Rea & Associates. Our team of bright dental CPAs can review the process you use to create your crowns to see if you qualify.

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What to Know About an Unclaimed Funds Audit

money pileThe state of Ohio has been performing a higher amount of unclaimed funds audits. Are you prepared if your dental practice is audited?

What are unclaimed funds?

Unclaimed funds are any credits or refund checks that may have been issued to your dental patients that have not be used or deposited. Payroll checks that are never cashed are also considered unclaimed funds. It is required that every three years any unclaimed funds are reported to the state of Ohio. The annual filing date is Nov. 1; however, many times these are not reported.

What do you need to do? 

The first step is attempting to try and locate patients or past employees that have not deposited checks that have been sent to them. If a patient has a credit on their account, contact them to determine if they will be coming back anytime soon. If not, the credit needs to be taken out and a check needs to be sent to them. If you are unable to get ahold of them, report the unclaimed funds to the state. Don’t wait three years. Get into the habit of filing annually so you never fall behind.

Don’t be caught by an unclaimed funds audit! 

Audits are time-consuming and involve a lot of paperwork. If it is discovered that you have unclaimed funds that have not been reported, the process creates more work for you and can be costly, taking time and energy away from your dental practice. Report your unclaimed founds before it becomes too late.

Unclaimed Funds Help 

Unsure if your dental practice is safe from an unclaimed funds audit? Contact Rea & Associates. Our team of bright dental CPAs can review your records to ensure you’re in compliance.

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Could An Audit Be Coming to Your Dental Practice?

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Could An Audit Be Coming to Your Dental Practice?

Recently there has been an increase in the number of unemployment audits being completed by the Ohio Department of Job and Family Services (ODJFS). What is it Unemployment Audits Ohiolooking for? It is reviewing employee records to verify that unemployment taxes are being paid for each of your employees.

The audits are completely random, so how can you prepare? Here are some things to keep in mind and be aware of:

  • Every employee needs to be added to your payroll. Whether they are an employee for a few days or for 10 years, they need to be entered into your payroll. There may be times when you hire someone on a trial basis to see how he or she will work out at your dental practice. They still need to be on your payroll and you need to be paying unemployment taxes for them. It can create more work, but will be a red flag if you are audited.
  • Go through a temp agency. If you like to see how an employee works at your dental practice before you add them to your payroll, go through a temp agency. This will protect you as the unemployment taxes for that individual will be paid by the temp agency and you won’t have to add them to your payroll until you are sure they are a good fit.
  • Dental hygienists can’t be subcontractors. According to the ODJFS, a dental hygienist can’t work on their own, as they need to always be supervised by the dentist. During the audit process, the state will be reviewing your 1099s, and if one is found for a dental hygienist it will be an instance of non-compliance.
  • Once an error is identified, the state may audit previous years. While completing its audit on last year’s employee files if the state discovers any issues this may lead them to check back further and look at other years.

Audits can be a big headache. They are very time consuming and can take you away from running your dental practice. Also, there are penalties and interest you may have to pay if it is discovered there are missed unemployment tax payments. Take the proper steps in the beginning when hiring new employees because it could save you additional time and money if your dental practice is audited.

Contact Rea & Associates

Unsure if your dental practice is prepared from a state unemployment audit? Contact Rea & Associates. Our team of bright dental CPAs can review your employee records to ensure you are prepared.

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Celebrate Your Dental Assistants

The week of March 3 – March 9 is recognized as Dental Assistants Recognition Week. Take time this week to thank your dental team for their hard work and dedication to your dental practice. They are a very valuable member to your practice, make sure they know it!

For ideas on how to recognize your dental team, visit the The Dental Assistant, the ADAA journal website. There you can also share how you are participating in Dental Assistants Recognition Week.

Group of dentists and their assistants looking at camera.

Unconventional Tax Planning For the Young and the “Older” Dentist

Dental Tax PlanningYou may find that as you manage your dental practice, there’s always a “right way” to doing something. But when it comes to dental tax planning, that’s not necessarily the case. When you think of tax planning, you probably think about ways to save money and minimize the amount of taxes you have to pay. But did you know that doing just the opposite may provide better long-term results for you and your dental practice?   

Tax Planning for Dentists

Traditional tax planning includes two common techniques, accelerating deductions and deferred income.  These are often strategic methods used to minimize taxes, but there are two situations when doing the exact opposite may be better for you.

How Accelerating Deductions May Not Be Right for Your Dental Practice 

Recently, I began working with a younger dentist that purchased a practice a couple years ago. His previous financial advisor chose to expense all of the cost allocated to equipment in the year of purchase.  This provided a wonderful tax refund for the dentist. However, what was not discussed and planned for was the whiplash effect in future years. The purchase of the practice was nearly 100 percent financed. The huge tax expense in the year of purchase was enjoyed without actually spending any cash. Two years later significant payments are being made on the loan and the only expense available is a relatively small amount of interest.

In the first year of the practice, the dentist’s tax rate was below 15 percent. It’s now more than 25 percent. Over a five-year period he may end up having to pay more taxes overall by taking an immediate 100 percent write-off of the equipment. What’s worse is the client had no sense of the impending cash crunch.

When purchasing a significant amount of equipment, particularly when starting into the dental profession, be careful on taking a 100 percent write-off. Better tax savings and more manageable cash flow may be available by spreading the expense over a few years.

When Deferring Income May Not Be Right for You 

The second unconventional technique I’ve used recently affects the retiring dentist. The situation involves accelerating income by either taking IRA distributions or incurring capital gains. Assume you are 64 years old and have sold your practice. Your plan for the next few years is to live off savings in taxable accounts and defer withdrawing from your IRA account until you are forced to at age 70-½. If in the years between 64 and 70 you have very little taxable income, it can be beneficial to take a relatively small distribution from your IRA now and/or sell appreciated stock or mutual funds. While detailed planning needs to be done in this scenario, it is possible to get tax-free capital gains and pay 15 percent or less tax on the IRA distribution.

Why pay tax on the IRA distribution now rather than later? When you turn 70-½ years old, the size of your IRA distribution plus the tax on social security income may actually pushes you into the 25 percent bracket. This means you have to pay more taxes.

Contact Our Dental Practice Professionals 

The only way to achieve the benefits of these unconventional planning techniques is to work with a CPA that understands dental practices and is willing and able to help you plan ahead. Contact Rea & Associates. Our team of bright dental CPAs will be able to work with you to determine when and when not to use these tax planning techniques.

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