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.

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.

Fraudulent Credit Card Transactions Will Become Your Practice’s Problem On Oct. 1

PCI  to EMV – Protecting Your Patient Credit Card Data

Patient Data Protection - Ohio CPA Firm

As of Oct. 1, 2015, the liability for fraudulent transactions will no longer be assumed by the credit card issuing institution. Instead, if you (the merchant) fail to adopt EMV technology, your dental practice will be responsible for any loss that results from a fraudulent transaction.

Like their screenings and dental procedures, your patients want their payment experience to be as easy and painless as possible, which is why you have come to depend on the ability to process credit card payments, which are frequently used to cover the difference after insurance pays a portion. But did you know that the magnetic stripes on your patient’s credit cards make them susceptible to fraud?

Major data breeches have made the news in recent years and all businesses are at risk (including your dental practice). Fraudsters are able to steal the information hidden within the cards magnetic stripe and use that information to create a fraudulent card. To combat the growing threat on consumer data, most American businesses will be expected to implement Credit Card EMV (EuroPay, MasterCard and Visa) technology October 1.

Read Also: ID Thieves Don’t Discriminate, Health Professionals Are At Risk

Change Is Necessary To Protect Your Patients

Due to the increasing number of credit card breaches where millions of credit card numbers and associated data have been stolen, the industry has forced small businesses nationwide to adhere to PCI (Payment Card Industry) Security Requirements. Supported by the PCI Security Council, the ultimate goal of EMV is to stop and prevent further fraudulent activity. Success has already been noted in countries outside the U.S.

“Currently, almost half of the world’s credit card fraud happens in the U.S. where magnetic stripe technology is the standard,” states David Navetta and Susan Ross in a blog on Data Protection Report. “Outside the U.S., an estimated 40 percent of the world’s cards and 70 percent of the terminals already use the EMV technology. These countries are reporting significantly lower counterfeit fraud levels with EMV cards than with the magnetic stripe cards.”

Understanding EMV Technology

Credit Card EMV technology, which has been used in Europe since the early 1990s, replaces the magnetic stripe we have grown accustomed to with an imbedded chip that, scrambles sensitive cardholder data at the point of sale terminal. This technology ultimately makes it more difficult to access and replicate consumer data in an attempt to commit fraud.

Dental Practices Must Comply

Why should you be concerned about the credit card industry’s switchover to EMV technology? As of Oct. 1, 2015, the liability for fraudulent transactions will no longer be assumed by the credit card issuing institution. Instead, if your dental practice fails to adopt EMV technology, your practice will be responsible for any loss that results from a fraudulent transaction. If your practice currently accepts credit cards as a form of payment (and you would like to continue to do so), unless you want to be hit with potentially devastating losses, you must make sure to install and activate the new technology before the Oct. 1 deadline.

That being said, some types of businesses will have a little more time to comply. If you aren’t quite sure whether or not your practice is exempt, visit the website of each payment brand you accept to learn more.

Next Steps For Dentists

  • If you have not investigated or planned for EMV Technology, contact your card processor immediately to determine your business’s specific needs.
  • Implementing EMV technology can be a cumbersome and time consuming project, but the best way to protect your practice from fraud and liability is to implement the new technology as soon as possible.
  • If EMV technology has been implemented be sure to confirm that the chip reading capability has been enabled. In addition, confirm with issuers that cryptographic values are being associated with the card number to ensure that the EMV technology has been setup and configured properly. Verifying that cryptographic values are being assigned will eliminate the chance of misconfiguration and possible fraudulent activity.
  • Train your staff on the new procedures. When a patient tries to use their card, they will notice some changes, such as their credit card being held in the EMV reading slot throughout the entire transaction process. This is normal, however your staff should be prepared to answer the questions that will certainly arise.

By Brian Garland (Dublin office) 

Want to learn more ways you can protect your dental practice and your patients from a fraudster? Check out these articles: 

Dental Practices Should Beware Of Wire Transfer Scam

Is Your Dental Practice Safe From Scammers?

Internal Controls For Dental Practices

Is Your Dental Practice Safe From Scammers?

One of our clients, a dentist, received a disturbing email last week … from himself.

The message said that he was robbed while on vacation with his family and needed money to pay his hotel bill and to purchase plane tickets to return home. The scammers attempted to make the email appear genuine by using the dentist’s name and address. It was then sent to his entire contact list.

Fortunately, his contacts realized that the email was a scam and did not send money. However this email serves as another reminder of how persistent and clever scammers have become. For example, this particular email referenced our client’s name, business address, office phone number and even used the “DDS” distinction following his name in the signature.

Is Your Practice Safe?

Avoid becoming a scammer’s next victim. Here are a few scams you should be on the lookout for.

What it is: A popular file encrypting program that locks your computer and your computer’s files until you pay up. Some victims have reportedly paid up to $10,000 to get their files back.

How to protect yourself: The best way to protect yourself against this is to back up your computer and files daily. You also want to be sure not to click on any links from emails that you aren’t expecting.

What it is: Victims receive a phone call from a scammer claiming to be an IRS representative. The caller threatens the victim with legal action if back taxes are not paid immediately.

How to protect yourself: Remember that the IRS will never call or email you in an attempt to collect payment. They will also never ask for your credit card or social security information over the phone. If you ever receive a call from somebody claiming to be the IRS, hang up and call the Treasury Inspector General for Tax Administration at (800) 366-4484. You should also contact the Federal Trade Commission by using the “FTC Complaint Assistant” at www.ftc.gov. Add “IRS Telephone Scam” to the comments of your complaint.

What it is: If your tax return was rejected by the IRS after you filed it online, it’s likely a scammer filed a tax return using your name and social security number to get a fraudulent refund. Thousands of American taxpayers were victims of this scam last year – and there is no reason to believe that this scam is going away.

How to protect yourself: Provide your tax documents to your CPA as early as possible. The best way to ensure that your tax return is filed correctly and that your refund is distributed appropriately (if one is due), is to beat the scammers and file your return early.

Protect Yourself and Your Practice

Contact a Bright Dental CPA if you have been affected by one of these scams or want more information on how to protect yourself against these threats.

Author: Dan Bialek, CPA (Mentor office)

 

Related Articles:

Is Your Dental Practice Prepared For An IT Disaster?

The Important Role IT Security Plays Within Your Dental Practice

 

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