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Surprised By Low Cash Flow And High Taxable Income?

Work with a dental CPA so that you don’t get caught in a cash flow pinch.

Over the years, I’ve experienced many instances where dental clients are surprised when they realize they have a lower cash flow, but high taxable income. What most clients don’t understand is that this is usually the result of taking substantial tax write-offs for equipment that are financed over several years.

Large tax write-offs are great, especially when you haven’t yet spent the cash. But it’s important for you to be prepared for the opposite: No tax expense, but cash is still being spent to pay down debt.

On an annual basis, one thing I do with all my dental clients is show cash flow calculations and projected taxable income calculations next to each other in an Excel spreadsheet. This immediately highlights the differences. I also find it valuable to show a 5 to 10 year comparison of depreciation expense to principal payments on debt. These two exercises help my clients understand where their money is going and helps them better strategize their next financial steps.

 

If you’re looking to maximize your effectiveness in managing these areas, reach out to a CPA who specializes in working with dental practices. They can help you evaluate your cash flow and taxable income and plan for the future. Email the Bright Dental CPAs at Rea & Associates to learn more.

Smile … New Tax Form Due Dates Are Coming

Changes, like teeth cleanings and taxes, are just a part of life, which is why you really shouldn’t be surprised to learn that many of the tax form due dates you have grown accustomed to are changing. And, if you want to avoid penalties, you will need to be ready to file your personal and practice’s tax forms on time beginning with the tax forms you file with the IRS next year (2017).

Visit Dear Drebit to learn more about the changes.

Have questions about how these due date changes impact your dental practice? Email the Bright Dental CPAs at Rea & Associates to learn more.

5 Ways to Save Before 2015 Ends

Dental Tax Deductions - Dental CPA

Put some extra cash in your piggy bank this tax season with these deductions.

Don’t Ignore These Tax Write-Offs for Your Dental Practice

As a small business owner of a dental practice, you can benefit from numerous tax deductions (some of which you may not even know exist) to ensure that you’re making the most of every dollar you earn. Even though we’re almost through 2015, there’s still  time to take advantage of these five often-overlooked tax write-offs:

  1. Ohio Small Business Deduction
    Many small business owners in Ohio are eligible to receive help from the state on their tax returns through the Ohio Small Business Deduction. Initiated by Ohio Gov. John Kasich and largely considered to be the biggest overall tax reduction in the country, the deduction allows eligible small businesses to take a 50 percent tax deduction on their first $250,000 of business income.
  2. Section 179 Deduction
    When Congress voted in favor of the Tax Extenders Act, among the many tax incentives that were extended included an action to retroactively reinstate the $500,000 depreciation limit on the Section 179 deduction, as well as the 50
    percent bonus depreciation expense. Together, these tax incentives have the
    potential to save you, and your company, hundreds of thousands of dollars
    on equipment purchases. Limits and restrictions do apply, however. Make sure
    to work with a CPA who can ensure your purchases actually qualify.
  3. Personal Vehicle Deduction
    If you drive your personal vehicle for business, then you may be able to deduct the expenses related to your car or truck as long as the vehicle was actually used for business purposes beyond your daily commute. Standard mileage rates of $0.56 per mile apply to business travel.
  4. Stock Gains Deduction
    Some qualified businesses may also be able to exclude the gains generated by qualified small business stock. This provision helps incentivize the importance of
    continued investment into our country’s small businesses. This incentive is a little more difficult than some others, but if you qualify, you could realize significant savings. Because of the complicated nature of this particular provision, it is essential
    that you work with a Bright Dental CPA tax advisor to find out if you qualify.
  5. Charitable Giving Deduction
    If you make a donation to a nonprofit organization during the year, it is almost guaranteed that you will be able to deduct at least a portion of your contribution from your income. The deduction will be limited to 50 percent of your adjusted gross income.

Email a Bright Dental CPA to help you determine if you qualify to claim one or more of these deductions.

Want more tax tips for your dental practice? Check out these posts:

10 Year-End Tax Planning Strategies for Dentists

What is the Ohio Small Business Tax Deduction?

Tax Provision’s Future Is Uncertain

Attract Top Talent With These Tax-Free Tactics

Offering fringe benefits to your employees can set you apart from your competitors when looking to hire new dental assistants and staff.

Offering fringe benefits to your employees can set you apart from your competitors when looking to hire new dental assistants and staff.

Competition is fierce when it comes to attracting and retaining the top talent for your dental practice and it seems as though dental professionals have no choice by to get creative when it comes to providing their dental staff with a comprehensive benefit package. We’ve seen other companies successfully deploy the tactic of providing their teams with fringe benefits, especially those businesses within the technology sector; and maybe it’s time for practice owners throughout the dental industry to consider this approach.

Read Also: Ten Tips For Growing Your Dental Practice

Have you been considering new ways to increase the quality and quantity of your practice’s talent pool? Fringe benefits like free food, massages, fitness centers and game rooms not only help your practice stand out among other practices in the area, they can be implemented without increasing your tax liability. The following is an overview of Publication 15-B, the Employer’s Tax Guide to Fringe Benefits, which is a helpful tool for owners of dental practices who are looking to learn more about the treatment various kinds of fringe benefits will receive at tax time.

What Is A Fringe Benefit?

Generally speaking, a fringe benefit is a form of payment given to a person in exchange for the performance of services. This benefit can be provided by you (the practice owner) to any person (not necessarily a member of your staff) who is performing services for your office, which means independent contractors and partners, for example, are also eligible to receive fringe benefits.    

Are Fringe Benefits Taxable?

All fringe benefits provided by your business are taxable and must be included in your recipients pay unless the law specifically excludes it. Further guidance on how to determine the taxable inclusion amounts is found in Publication 15-B. That being said, cash, cash equivalents and gift cards are generally considered taxable and are not included on the exclusion list below.

What Types Of Fringe Benefits Are Specifically Excluded And Non-Taxable?

(This is not an extensive list.) 

  • Achievement Awards – Your staff likes being recognized for their length of service or safety achievements. While recognition/awards that take the form cash, cash equivalents and gift certificates are taxable, practice owners can reward the dental practice’s team with tangible personal property under this exclusion. Note: Depending on the type of the award, dollar limits may apply.
  • Athletic Facilities – If you maintain an on-site athletic facility that is exclusively used by your office’s staff, your staff’s spouses and their dependent children, the value of this benefit is not required to be included in your staff’s wages.
  • De Minimis Fringe Benefits – A de Minimis fringe benefits are “perks” that are considered to have very little value – so much so that accounting for a benefit of this size would be considered unreasonable or administratively impractical. Common examples of de Minimis fringe benefits include:
    • Occasional personal use of company copying machine
    • Holiday gifts, with a low market value
    • Occasional tickets to the theater or a sporting event
    • Occasional parties and picnics for your practice’s staff and their guests
  • Employee Discounts – This fringe benefit, while subject to limitations, implies that an employer can offer employees a discount for property or services, as long as it is provided to patients as well.
  • Employer-Provided Cell Phones – Many dental professionals provide cell phones for non-compensatory business reasons. Personal use of an employer provided cell phone is excludable from an staff member’s income.
  • Meals
    • De Minimis meals – Coffee, donuts, soft drinks and meals that help to enable your staff to work for longer periods of time are not taxable. Just remember to know your audience – too much sugar is bad for the teeth!
    • Meals on your business premises – Meals that are provided to you team on your practice’s property, which are made available for convenience (facts and circumstances), are excludable. 

NOTE: Expect to see more IRS guidance forthcoming regarding meals as they fine tune the “employer’s convenience” guidance. With all the attention Google and Facebook have garnered for their employee meals the IRS has made meal fringe benefits a priority initiative.

Email a Bright Dental CPA to learn more about what tactics are available to help you attract the talent you need while helping you keep your tax bill down. 

Check out these articles for more tips and tax strategies to help you save extra money at tax time! 

How To Determine When To Call A Dental Retirement Plan Administrator

What Is The Ohio Small Business Tax Deduction?

Could A Crown Be A Tax Deduction?

Dentists Want More From Vacation Homes

Second Houses Can Trigger Tax Relief

Second Houses Can Trigger Tax Relief for Dentists - Bright Dental CPAs - Ohio Accounting Firm

If you rent your vacation home to friends and family at a cost that’s less than what is considered to be a fair rental price during the weeks you are not using it, it’s considered personal use property, which allows you to deduct real estate taxes and mortgage interest as itemized deductions on your personal tax return.

There will come a point in your dental career when you will have finally paid off your student loans, updated your equipment, remodeled your practice and have secured a large, dependable customer base. This will be a pinnacle moment in your life and certainly cause for celebration. Oftentimes, dental professionals choose to celebrate such an accomplishment by making a large purchase – a tangible representation of their professional success. For many, a second home not only becomes a symbol of their achievement, it can be a useful (and potentially lucrative) investment that can bring added tax benefits.

Read Also: Debunking Common Personal Finance Myths For Dentists

I frequently field questions from clients who want to know more about their tax implications with regard to purchasing a vacation home. Below are some common scenarios to consider, based on the insight I have provided to dental professionals in the past.

Change The Scenery

If you rent your home 14 days out of the year or less and use the home for personal use for 14 days or more, the property will be classified as personal use property, which allows you to deduct your real estate taxes and mortgage interest as itemized deductions on your personal tax return. In addition, if you rent your home out to your dental practice for meeting space a few times a year (fewer than 14 days), your practices can take a deduction for the expense of renting the property. Just make sure that the business purpose of the space is clearly defined.

Generate Extra Income

Rather than buy a vacation home that sits empty for the majority of the year, you may find that it makes sense to rent it out to others while you aren’t using it. If you do decide to go this route and rent it for more than 14 days of every year, remember that all income generated as a result of this transaction is taxable. That being said, a portion of the mortgage interest and real estate taxes may be deductible as rental expenses while some of your other expenses could qualify as itemized deductions. You might be able to take depreciation on the property as well. Furthermore, rental losses are limited based on your adjusted gross income and are carried forward during the years in which the loss cannot be taken. This whole process can get confusing. Therefore it’s important to sit down with your tax advisor to ensure that Uncle Sam gets his cut.

Welcome Friends

So you aren’t really on board with the prospect of renting your vacation home to strangers while you are away, but you really don’t like the idea of letting the house sit empty either. In this case, you might consider renting the property to friends and family. If you take this route and rent it at a cost that’s less than what is considered to be a fair rental price during the weeks you are not using it, it’s considered personal use property, which once again allows you to deduct real estate taxes and mortgage interest as itemized deductions on your personal tax return.

Four Interesting Facts To Know Before You Buy

If you are struggling to figure out which state you should consider as the location of your second home or whether investing in a piece of land, timeshare or even a mobile home is more favorable to your specific situation, consider these interesting tax facts.

  1. If you decide to invest in a portion of land on which to build your home then, for whatever reason, change your mind and decide to sell the property prior to personal use, the gains or losses would receive capital gain or loss treatment. On the other hand, if you buy the land, build a home, and, after a while, decide to sell it at a loss after having used it personally, you will not be able to claim the loss on your tax return.
  2. Ever wonder if that boat, mobile home or house trailer qualifies as a second residence for purposes of the mortgage interest deduction? Good news – it does! That is, it qualifies for the deduction as long as it includes sleeping, cooking and bathroom facilities.
  3. Looking to purchase a vacation home far from the obligation of state income taxes? Then look no further than Florida, Texas, Alaska, Nevada, South Dakota, Washington, Wyoming, New Hampshire or Tennessee. These states don’t have a state income tax, which could lower the tax impact on your rental income and any gains realized from the sale of a piece of property.
  4. Listening to a salesman pitch the benefits of owning a timeshare can be terrifying, but taking the plunge and making the investment doesn’t have to be – at least from a tax standpoint. Timeshares can be considered second homes for the purpose of deducting interest expenses. However, if you decide to rent the timeshare to a third party, you may end up forfeiting the mortgage interest deduction. Another common misconception about timeshares is that letting a charitable organization stay there for a period of time will qualify as a charitable contribution. This is not the case. The only way to get a charitable deduction for your time share is to donate the entire property to a charity.

Want to find out if owning a vacation home is right for you? Email the Bright Dental CPAs at Rea & Associates today.

By Dan Bialek, CPA (Mentor office)

Want to master the various stages of your dental career?
These article may provide some insight.

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What To Consider When Purchasing A Dental Practice

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