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Tax Law Changes May Alter How Dental Professionals File Their 2014 Tax Returns

As the ever-changing tax law begins to take form in advance of the 2014 tax season, now is the time to start anticipating what your 2014 tax return will look like. After all, in only a few short months it will be time to start preparing it.

Just like previous years, there are a number of tax law changes to be aware of when you sit down to work on your 2014 tax return. Here are some of the highlights.

  • The Standard Deduction is changing. Married couples will now receive $12,400 instead of $12,200. Singles will receive $6,200 as opposed to $6,100.
  • Personal Exemptions are increasing. Individuals and dependents will now receive $3,950 instead of $3,900. This deduction, however, is phased out for higher income earners.
  • The Social Security Wage Base is changing. This means that you will now pay social security on up to $117,000 of your wages – an increase of $3,300 over the 2013 rates. The tax rate will remain at 6.2 percent for employees and employers. The 1.45 percent Medicare tax will remain unchanged from last year.
  • Social Security Benefits will increase. Anyone receiving social security benefits can expect a 1.5 percent increase in benefits due to inflation.
  • HSA Limits are increasing. If you contribute to a health savings account, you can now put away $6,550 if you have family coverage or $3,300 for self-only coverage. If you are 55 or older, you may contribute an additional $1,000.
  • IRA Contribution Limits Remain Unchanged, but Income Levels for Deductible Contributions are Different. The maximum you can put into your IRA is still $5,500, but you cannot deduct a traditional IRA contribution if your adjusted gross income exceeds $70,000 if you are single, $191,000 if you are married (filing jointly) and only one spouse is active, or $116,000 if both spouses are active.  If you contribute to a Roth IRA and are married (filing jointly), your adjusted gross income cannot exceed $191,000. If you’re single, your adjusted gross income cannot exceed $129,000. If you file under the “married filing separate” status, you will most likely not be eligible for an IRA benefit unless you contribute to a non-deductible IRA and convert it to a Roth IRA.  (This strategy may be useful for high income earners.) Email a dental CPA at Rea & Associates to find out how this strategy may help you.
  • SEP Contribution Limits are increasing. You can now contribute the lesser amount of either 20 percent of your net self-employment income or $52,000, which is up from last year’s $51,000 limit.
  • Standard Mileage rates have decreased. The reimbursement rate is now $0.56 per mile, which is down from $0.565 per mile in 2013. Charitable mileage rates remain constant at $0.14 per mile, while medical and moving mileage rates are down from $0.24 to $0.235 per mile.
  • The Estate and Gift Tax Exemptions are increasing. In 2013, this exemption was $5.25 million. It will be $5.34 million in 2014. The top tax rate will remain at 40 percent on estates, and gifts are still allowed up to $14,000 per year to an individual without the need to file a gift tax return. If you are married, the gifting limit doubles to $28,000 per year without the responsibility of filing a gift tax return.
  • Bonus Depreciation has ended (for now). Under the current law, bonus depreciation is not allowed for 2014. In 2013, you could take 50 percent bonus depreciation on certain assets purchased. However, it is, possible that Congress will retroactively extend the tax benefit for the entire 2014 tax year. Section 179 depreciation limits are currently set at $25,000 for 2014, but are also subject to change.

Contact Our Dental Practice Professionals

Email a dental CPA at Rea & Associates for regular updates and guidance on these changes, as well as any other tax law changes that may affect your 2014 tax return.

By Alan Hill, CPA (Mentor office)

 

Related Articles:

Filing A Tax Return Is Not A Scary Thing

What Is The Ohio Small Business Tax Deduction?

Dental Tax Preparation To Do’s

Debunking Common Personal Finance Myths For Dentists

As a dentist, you have a lot on your plate. Managing your dental practice. Treating your patients. Overseeing your staff. The list goes on. But you’re also responsible for your own personal finances – separate from your practice. At times, you may wonder how you stack up financially to your peers and friends. I’ve been a practicing CPA and business advisor for almost 20 years and the phrase, “I have friends who …” has been the starting point of many of my most interesting and revealing conversations. Below are several variations of the phrase in action, followed by my responses. Do any of these sound familiar to you?

  1. “I have friends who pay little or no income taxes.”First, do you know if that is really true? Have you seen their income tax return? If it is true, it’s probably the result of either:
    1. No income.
    2. Losses from a business that offset other income.
    3. Large deductions that took cash spent to generate them.
  2. “I have friends who take tax deductions for (insert whatever silly “expense” you can think of here).”Again, have you seen their income tax return? I’ve seen situations where someone thinks they are getting a tax deduction for something but in reality they are not. It’s because either they don’t understand how to interpret the complex forms and calculations within the return or they don’t look at the completed tax return to know if their tax preparer was able to use the information … of which, the preparer probably looked at it and promptly set it aside because the “deduction” wasn’t allowable. Or, as stated above, they filed a tax return that was wrong, fraudulent, and/or unethical.
  3. “I have friends who have two vacation homes and drive new cars every year. How are they making so much more money than me?”We all hear this and many buy into it. In reality though, your friends’ financial superiority is probably due to one of two things. (In my experience, it is most likely the second scenario.)
    1. Scenario One: The obvious reason could be that your friends work harder, or are smarter, than you. If that’s not the case, maybe they are more willing to take on more risk or are quick to jump on opportunities and capitalize on them. Or maybe they were just plain lucky.
    2. Scenario Two: The second, and more common, answer is that these friends are living beyond their means. They are spending more than they make and are heavily in debt. They spend every penny and risk financial disaster if a hiccup ever occurs in their income stream. And they are not properly saving for retirement.
  4. “I have friends who only pay their accountant X amount per year or X amount for their income tax return preparation.”My response depends on specific circumstances. If this statement was made in the business context, I question if they really know how much they pay their CPA. I have found that it’s common for many individuals to say they don’t know. Perhaps the reason they don’t know is because no matter how much they are paying, they are not able to see the value, therefore they cannot justify their cost. The bottom line is, and has always been: “You get what you pay for.”  Are there CPAs who do a bad job and charge very little for their services? Absolutely. But you can avoid these risks by searching for a qualified, experienced financial advisor in the first place.

Here are three suggestions for combating the “I have friends who …” argument:

  1. Make judgments and decisions based on facts. I am not suggesting that everything you hear is a lie, but understand that sometimes people will say things with such conviction that you think they must be right and that they know more than you. Also keep in mind that, sometimes, facts can turn into embellishments and half-truths. If you find yourself questioning a statement you heard, make an effort to find some facts about the topic using credible sources.
  2. Have independent thoughts and opinions. It’s OK to be “different” or have views that are not “mainstream.” And it’s OK to disagree with your friends. If you haven’t yet, I highly recommend that you read the book, “The Millionaire Next Door,” which will help shine a little more light on the topic.
  3. Find an advisor who can help you sort fact from fiction, someone who is independent and who has original thoughts.

Your advisor should be willing to blow the whistle when they hear something that is simply not true. More than that however, they must be willing and able to explain why the claim is false.

Personal Finance Help

If you’re a dentist who needs help making sense of your personal financial situation, contact Rea & Associates. Our team of bright dental CPAs can meet with you to examine your financial situation and help you gain a realistic view of your personal finances. Author: Ryan Dumermuth, CPA, CFP (Mentor office)

Check out these other business advice dental blog posts:

Guide Your Dental Practice with an Employee Handbook Is Your Dental Practice in “The Cloud”? Why You Need A CPA When Selling a Dental Practice?

What is the Ohio Small Business Tax Deduction?

Ohio Small Business Tax DeductionAre you familiar with the Ohio Small Business Tax Deduction? If so, your tax savings were probably nice this tax season. If you’re not familiar with it, keep reading. For those who qualify, you could still see some tax savings for the taxes you just filed.

What You Need to Know About the Ohio Small Business Tax Deduction

  • What is the Ohio Small Business Deduction?

Simply put, it’s a deduction available for small businesses that operate in Ohio – this could be your dental practice!  More specifically, it benefits the owners of a pass through business entity.  Owners can exclude 50 percent of their business profit up to $250,000.This deduction could eliminate up to $125,000 in otherwise taxed Ohio income.

  • Does my dental practice qualify as a small business? 

If you receive a K-1 form as an owner of your dental practice or you file as a schedule C taxpayer, then Ohio considers your business a small business and you qualify for the deduction.

  • How does it work?

The credit is taken at the individual level, not the corporate level. So you take the deduction on your individual income tax return by filing form IT SBD. The credit is 50 percent of your business profit minus a few items that Ohio doesn’t let you double dip. Some examples are your deduction for 50 percent self-employment tax or your deduction for self-employed health insurance.

The credit is only available for owners of Ohio-sourced companies. So if you operate only partially in Ohio, then an allocation is needed to determine how much of a credit is available in the state. This allocation is based on the location of your sales, property, rent and wages.

  • What if I zero out (or significantly reduce) my dental practice profits through bonuses? 

Good news, that’s not a problem if you are a 20 percent or greater owner in your dental practice. The law allows you to include compensation or guaranteed payments in the calculation of the credit.  

  • What if I own the building that my dental practice operates in? 

Good news here too, as you can also include the rental profit from the building into the Ohio Small Business Deduction, as long as the rent was received in the ordinary course of trade or business.

  • How much can you save?

It all depends on your circumstances, but it could be upwards of $6,500 per year in tax savings.

  • When did the law take effect?

The law was passed in late 2013, but was made retroactive for the entire year. As of now, this law currently stands for 2014 as well.

  • What’s the catch?

More good news, there really isn’t one! Ohio is encouraging investment inside the state, and this is one of the ways it is doing just that. In a way to offset some of these tax hits, Ohio raised its sales tax by 0.25 percent last year.

  • What if my tax return has been filed and I didn’t get this tax credit?

It’s not too late to amend your return if you qualify for the credit. Contact a Dental CPA at Rea & Associates immediately to work on getting your money back.

Contact Our Dental Practice Professionals

Need more information about the Ohio Small Business Tax Deduction and how it applies to your dental practice?  Contact Rea & Associates. Our team of bright dental CPAs can help you understand it and determine if it applies to you.

Are You Missing Any Reimbursements?

Dental CPA As the year comes to an end, now is the time to make sure all your receipts and finances are in line. During the year, you may have paid for various dental practice expenses out of your own pocket. These are all expenses related to managing your dental practice, taking care of your patients, growing your practice and various other expenses. Have your reimbursed yourself from your practice for all these expenses that you paid during the year? Here are some of the expenses you should reimburse yourself for.

1.)    Meals and Entertainment

Were there lunches or dinners that you paid for during the year that you didn’t turn into the practice? Look through your desk or even your dresser and make sure there are no receipts that you have forgotten about. (Next year, create a central place to store all of these to make it easier on yourself!)

2.)    Travel Expenses

Did you travel this year for your dental practice – including continuing education trips? If you used your credit card for airport limos, taxis, supplies needed for the trip and even your airport parking, turn those receipts in for reimbursement.

3.)    Continuing Education Expenses

Registration for most educational courses are being done online. You may have registered for those courses during off hours, perhaps while you are at home in evening with your own credit card. Look through your emails or credit card statements to find those charges and turn them in for reimbursement.

Take the time to review your personal credit cards, desk drawers and old emails for those things that you purchased for the dental practice, but never got around to reimbursing yourself for. You might be surprised how much it all adds up to. Doing this now will ensure nothing is missed as these expenses are pre-tax expenses and will lower your taxable income.

Contact Our Dental Practice Professionals

Not sure what qualifies for reimbursement? Contact Rea & Associates, our team of bright Dental CPAs can answer any questions you may have and make sure you are getting fully reimbursement for your dental practice expenses.

Related Articles

Why Your Dental Practice Needs Dental CPA

Ten Tips for Growing Your Dental Practice

Tax Planning – Not A Once-A-Year Event

 

Factors in Determining Dentist Compensation

Dentist CompensationThe end of the year is right around the corner. Are you using this time to reflect on what kind of year of it was for you and your dental practice? Here are a few questions you should be asking yourself to determine the success of your dental practice.

… How did you grow as a dentist?

… How happy were your patients?

… Did your dental practice see growth?

… Did you get paid fairly for that growth?

… How are your being compensated?

That last question is a big one. And if your dental practice has more than one dentist, you have to consider how much they are being compensated, as well. So how should you be paid? How about your fellow dentists? The following are a few things you should keep in mind when looking at dentist compensation.

Determining Your Compensation

Deciding how much to pay yourself and how much to keep in your business, is a fine line that dentists must walk. However, there are insights into this calculation that you need to be aware of:

  • Use Entity Type as Your Guide. Your entity type guides how you can be compensated. For example, if you are an S corporation, you can establish a salary and take a draw (or distribution). This differs slightly for C corporations where you can receive a salary and then a corporate dividend. Sole proprietor can’t take salaries through payroll. Rather, if this is your entity type, you can only take draws.
  • Take a Reasonable Wage. Be sure to pay yourself a reasonable wage. Many dentists believe they shouldn’t pay themselves as a member of an S-corporation and only take distributions to avoid payroll taxes. This is a common misconception. You need to understand that the IRS watches for this activity – and they will catch you. It’s not worth the risk.
  • Maximize Your Retirement Plan. Paying into your retirement plan is an important component of your total compensation. The maximum wage base for a full retirement plan contribution in 2013 is $255,000. This is set to increase to $260,000 in 2014, so you may need to adjust your salary to take full advantage of your retirement plan.
  • Fund Your 401(k) with a Year End Bonus. Have you maxed out your 401(k) plan? That equates to you contributing up to $17,500 this year. If you are set to fall short, consider taking a bonus to maximize this benefit. The good news is that this bonus is also a corporate tax deduction for your dental practice.

Strategies for Multi-Dentist Practices

While there are compensation issues all dentists must consider, things get trickier when there is more than one dentist in your practice. Let’s look at the common practices being used today.

One method used to calculate compensation is productivity … and productivity alone. The dentist with the most collections receives the largest income and vice versa. However, in many cases, productivity doesn’t tell the whole story. That’s when dentists begin factoring in expenses.

Expenses – like travel, continuing education, auto expenses and meals & entertainment – are more individual by nature and often pulled into the equation. That’s why some practices with multiple dentists reduce a dentist’s income by his or her own expenses in certain categories. Some practices even take it a step further by factoring overhead percentages into this calculation. The theory is that a higher producing dentist may use more overhead.

Tackling the Compensation Issue

Unfortunately, there is no right answer to compensating yourself fairly. With hundreds of options, it really comes down to what works for you as well as any other dentist in your practice. Yet, this is an issue you need to review regularly and the end of the year is the perfect time, especially as you contemplate your progress thus far and make plans for the year ahead. Just remember that what works for one dental practice may not work for yours.

Contact Our Dental Practice Professionals

Need help deciding which option is best for you and your dental practice, contact Rea & Associates. Our team of bright Dental CPAs can work with you to determine the best strategy for your dental practice.

Related Articles:

A 401(k) Plan and Your Dental Practice

Ten Tips for Growing Your Dental Practice

Tax Planning – Not A Once-A-Year Event

 

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