Make Your Financial Statement Work For You

Best practices for formatting financial statements

Did you know that there’s no “right way” to format or present your practice’s financial statement? It’s true, there are several approaches that dentists can take when crafting a financial statement. What’s most important is that the statement is meaningful to you and is easy to understand and analyze.

That’s where many dentists find it helpful (and critical) to have a CPA who specializes in advising dental practices. It can be difficult for some dentists to determine what is most important to them on a financial statement. Oftentimes, dentists tend to have a financial statement that is backward looking. It tells you the history of your practice’s performance. A CPA focused on working with dentists can help you develop a financial statement that creates best practices discussions and enables you to look forward.

Financial Statement Reporting Possibilities 

Curious to know what are some commonly used items on dental practice financial statements? Here’s a quick list of some reporting possibilities:

  • Show only cash collections as revenue or show production with offsets for contract adjustments, write-offs, and changes in accounts receivable. The “offsets” essentially are changing the production accrual basis revenue to cash basis.
  • List the cost of goods sold, which could include dental supplies, lab expense and hygiene wages.
  • Show percentage of revenue for each expense.
  • Include an expected range or benchmark percentage in the expense description.
  • Group together common expenses, such as staff expenses, facility costs, doctor expenses, etc.

Creating Discussions To Further Develop And Build Your Practice

After you create a financial statement that suits your practice needs, you’ll have a document that can help you identify areas for improvement and areas that are performing well. Your dental CPA can help create discussions addressing these areas. Here are just some of the discussions that could come from formatting your financial statement in a way that works for your practice:

  • Trend analysis (for example: is your revenue stagnant or decreasing and are your staff expenses increasing?)
  • Employee benefits
  • Retirement plan strategies
  • Insurance coverages
  • Planning for future significant cash outlays/equipment purchases
  • Facility lease renewals
  • Collections on patient receivables
  • Marketing initiatives
  • Preparing to sell your practice

If you know that your financial statement could use a tune-up or a second set of eyes, don’t hesitate to contact your financial advisor for advice. Email the Bright Dental CPAs at Rea & Associates to learn more.

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.

Ohio Sales and Use Tax Impact on Dentists

Should you be charging your dental patients a sales tax for your services or products? This may be a question you have asked yourself since opening your dental practice. The answer is: it depends.

Charging Sales Tax on Products Sold

Depends on what? When talking about charging sales tax on a product, we generally think about a retail business.  But dentists need to think about this too.  If you’re  selling a toothbrush, floss or other over-the-counter tangible products, sales tax should be charged to your patients and then remitted to the state of Ohio.  Conversely, if the product is being sold with a prescription and is not available over-the-counter, there is a special exemption that allows you to sell the product without charging sales tax.  An example of this would be prescription mouthwash that’s not available over-the-counter and is being prescribed to a patient.

Paying Sales Tax on Products Purchased

Likewise, you also need to remember to pay sales tax on items you purchase for your dental practice that are subject to sales tax.  Some of these items may include:

  • Office supplies
  • Dental supplies
  • Lab supplies
  • Invisalign
  • Computers
  • Equipment

If these purchases are made online or from out of state vendors who don’t charge sales tax, use tax should be paid.  Also, if you’re not paying sales tax on one of the previously mentioned taxable services, use tax should be paid.

Paying Sales Tax on Services

As for general dentistry, those services are not taxable for sales tax purposes.  However, that doesn’t mean all services are tax exempt in Ohio.  You should still make sure you’re paying sales tax on the following services for your dental practice:

  • Lawn care or landscaping
  • Building maintenance and janitorial services
  • Repair of tangible property
  • Laundry and dry cleaning services
  • Snow removal services
  • Storage of tangible personal property

Contact Our Dental Practice Professionals

So, what should you do if you are not paying sales tax or use tax when you should be?

The state of Ohio currently offers a voluntary disclosure agreement program that could substantially reduce the amount of exposure and penalties that you may owe.  Contact Rea & Associates; our team of bright dental CPAs can provide more information about the voluntary disclosure program and other ways to ensure you are complaint with the ever changing sales and use tax laws.

Related Topics:

Understanding Ohio Local Tax Obligations

How Sales & Use Taxes Apply to Ohio Dental Practices

How To Get a Tax Credit for Health Insurance Costs