Understanding Ohio Local Tax Obligations

Local Tax PuzzleYou may feel like your dental practice has to pay taxes left and right, up and down and inside and out. Whether it’s federal, state, payroll, real estate, unemployment, commercial activity, sales, use or any other tax out there – your tax liability can really add up. And local taxes make up a nice piece of your tax pie.

If you own a dental practice in Ohio, your practice is responsible for paying your local taxing agencies, which may include multiple taxing authorities. Ohio is one of the few states in the country that assesses local taxes.

Here’s a look at the various local taxes you and your practice will owe local Ohio municipalities. 

Individual Local Taxes

Not only do your employees remit taxes to the city in which your dental practice is located, so do you if you receive a paycheck. But local tax payments can be rather complex. You see, if you or your employees work at multiple locations, wages need to be allocated based on the time spent in each office. If one of the locations is in a township or another non-taxable location, this allocation becomes even more important so you don’t pay more taxes than you have to.

After you and your employees have paid all of your city taxes based on where you work, you will then reconcile this on your local tax return and possibly pay additional taxes to the city in which you live. Most, but not all, local taxing agencies give you credit for taxes paid where you work. This is good because you don’t have to pay 100 percent taxes to both the city where you live the one where you work. Each residence city tax credit is different based on their own tax rules, so be sure you are getting the credit that you deserve. 

Local Taxes for Your Practice

City taxes are also paid on your dental practice’s profit. If you have profit at the end of the year, the city in which your practice is located may assess taxes. And for those dentists with more than one location, profit will need to be allocated based on four factors:

  • Sales
  • Property
  • Rent
  • Payroll

In order to properly allocate taxes, it is important that you are able to track each of these categories by location.

Any net loss will be allocated based on these same factors and will likely be carried forward. Most cities allow losses to be carried forward for five years, but this also varies by local taxing agency.

Local Tax Enforcement on the Rise

Most cities in Ohio are handled by the Regional Income Tax Agency (RITA) or the Central Collection Agency (CCA), but some cities and villages assess and collect the taxes themselves. In the past five years, the local taxing agencies have become very aggressive with sending tax notices at any chance they get. 

Contact Our Dental Practice Professionals

If you receive a tax notice, be sure to contact Rea & Associates before paying the balance. Our team of bright dental CPAs will review your taxes to ensure payment is actually due. Oftentimes it may just require additional documentation in lieu of payment. You pay enough taxes as it is, so don’t get stuck paying more than you need to our local taxing agencies.

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A 401(k) Plan and Your Dental Practice

Dental Practicde 401k PlanJust like any other employer, you probably offer your dental practice employees a 401(k) plan. This is a great “benefit” for employees, as many have retirement on their minds. As the owner of your dental practice, you are responsible for your practice’s 401(k) plan and how it is managed. That means within reason (and the law), you make some of the rules and there are also some that you must follow.

401(k) Distributions—Good or Bad?

Some 401(k) plans give employees the option to take a 401(k) loan, or an early distribution. That means if they have a need for cash sooner than later, they can take a specific amount of money out of their 401(k) and use it toward their need. Needs may include caring for a family member, purchasing a house or paying off medical expenses. However, many plans impose a penalty for an early distribution, and many plans are structured where the individual has to pay taxes on their distribution. As you can begin to see, there are several considerations to be made before allowing early distributions.

Issues That A Loan Policy Can Create For A Dental Practice    

To govern a 401(k) plan, many businesses develop a loan policy. A loan policy outlines what is acceptable in regards to allowing a 401(k) loan, or an early distribution. There are several risks that a dental practice takes on if its 401(k) plans allows these distributions. The following are some risks:

  • The employee borrows too much money than they can actually afford to pay back.
  • An employee gets behind in their payments, or they never start their payments to repay their loan.
  • The loan term is too long.
  • Payments are voluntarily suspended or discontinued. If your employee can no longer afford to make payments, you may not stop their withholding for a temporary or permanent basis. The employee’s loan is still considered an asset of your dental practice’s overall 401(k) plan. If this happens, a plan asset decreases in value.

401(k) Recommendations For Dental Practices

 If you have a small staff and also offer a 401(k) plan to your employees, allowing your employees to take 401(k) loans may not be worth your time, or the financial burden that it could create for you and your practice. Furthermore, creating a loan policy is worth your effort. 401(k) plans are highly regulated by the IRS, and the last thing you and your practice needs is 401(k) issues with the IRS.

401(k) Help For Dental Practices

If you need help managing your 401(k) plan, or need assistance in figuring out how to solve 401(k) plan issues, contact Rea & Associates. Our team of Dental CPAs has the knowledge to help you figure out where you need to be as it relates to your dental practice’s 401(k) plan.

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Tax Planning – Not A Once-A-Year Event

Tax Planning – Not A Once-A-Year Event

Dental Tax Planning

Are you looking at your taxes more than just once a year?

To most people, the word “taxes” is probably most closely associated with the date April 15. However, taxes are so much more than just one day each year. And tax planning shouldn’t be just a once a year event– it should be year round.

There are events that happen in both your dental practice and personal life that should cause you to stop and consider how these events may impact your income taxes. Some may be unexpected, while others are may be planned. Whatever the case may be, it’s important that you are prepared. Could any of the following events be ones you’re facing?

  • Bonus Time

You (or the dental practice you work for) may give bonuses on a quarterly basis, or you may choose to give them at some other time. If you calculate your bonus withholding using the IRS tables, there is a good chance the withholding might not be accurate for your personal situation. Performing a tax projection by estimating what you can in your return will help you ensure you have the proper withholdings.

  • Purchasing New Equipment

Do you need new dental patient chairs? Or perhaps you need new lights. You should consider the effect purchasing new equipment will have on your dental practice. Will you be financing it?  How will the depreciation of the equipment affect your practices, and ultimately your bottom line? These decisions will affect the profitability of the practice for the year and the amount of cash available for other items, too.

  • Investment Gains and Losses

We’ve seen an increase in capital gains and dividend income during the past few years as the economy has started to recover. Some corporations are paying better dividends. Perhaps your broker now feels that it is a good time to sell something and your capital gains on your investments might be significantly higher than in other years. While we all love to see our investment accounts grow, when it comes time to file taxes people don’t like the corresponding tax owed on those investments. When you discuss your investment progress with your investment advisor, you should also ask about what potential tax consequences you may face.

  • Life Changes

Marriage, divorce and a new baby are just a few life changes that people go through each day And each of these scenarios (and others) can change your tax filing status, your income, and/or the amount of dependents that you will be allowed to take in a given year. In some of these cases, the last thing you want to think about would be your income taxes. But it’s important to keep in mind how your tax situation will more than likely change as your life changes.

Income Tax Planning for Dentists 

As a dentist, you have so many things on your mind. Your patients, your staff and your dental staff (what’s the difference between staff and dental staff?) —just to name a few. Don’t forget about yourself—and your own personal financial situation—amidst everything else. If you need help figuring out where to start planning for income tax changes, contact Rea & Associates. Our dental accountants at Bright Dental CPAs can help you prepare and plan for the unexpected events in life—good or bad. And who knows? You may even sleep better at night, knowing you’re as financially prepared as you can be for the curveballs life will throw you.

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10 Questions Dentists Should Ask About Their Health

Dental Practice ManagementAs a dentist, you need to be on your “A” game every day. If you’ve ever felt sluggish at the office, then you are not alone. The challenges of dental practice planning and management can be often times be difficult. However, the solution could be quite simple. Get more sleep! Sure, you hear that all the time, but the importance of it is often forgotten.

Have you ever asked yourself, “Why am I so tired all of the time?” If so, make sure to ask yourself these follow-up questions:

  1. Have I seen my primary care physician recently? If you’re constantly tired, it’s possible you could have sleep apnea, heart disease, anemia, hypothyroidism, diabetes or depression.
  2. Am I drinking enough water? Believe it or not, dehydration is the number one cause of daytime fatigue.
  3. Have I recently changed medications that have side effects related to sleep?Read the labels, and those sometime annoying prescription pamphlets that we all just want to throw away. You’ll be surprised at how many medications can affect your sleeping habits.  
  4. Do I have a consistent bedtime routine? If it’s possible, pick that you aim to be in bed by. Gone are the days when you were in college and were able to stay up all hours of the night!
  5. Do I worry about things while lying in bed? Keep a journal beside the bed to write down thoughts so you don’t worry about forgetting them.
  6. Do I read, watch TV, eat, talk on the phone, etc. in bed? Your body should associate the bed with sleep, not these other activities. So put down the tablet, the smartphone, and any other electronic device that may keep you up past your bedtime.
  7. How is my diet? Eating a large meal right before bedtime can cause restlessness. Give yourself a cut-off time for when you won’t eat any more food.
  8. Is my bedroom quiet and dark? If your bedroom is by a busy road, or if you have neighbors in the apartment next to you that are loud at all hours of the night, maybe it’s time you invest in a white noise machine. Or perhaps you should invest in blackout curtains. Whatever the case may be, make sure that your sleeping environment is ideal for a good night’s sleep.
  9. Am I getting enough sleep? According to a study from the National Sleep Foundation, 6.5 to 7.5 hours per night is the optimal amount of sleep. More than 8.5 hours is actually too much and can cause further daytime fatigue, and less than 6 hours per night will do the same.
  10. Have I tried everything? Breathing exercises and muscle relaxation techniques have been proven to help you sleep at night.

Dental Business Advice

Getting an optimal amount of sleep will improve your effort, focus, energy, eliminate mistakes at the office, and provide long term health benefits. Your patients deserve the best, and one of the most important ways to stay sharp is to simply sleep well every night. If you’re interested in learning more dental practice management strategies, contact Rea & Associates. While our team of  Dental CPAs typically advise on tax and accounting-related topics, we have some great ideas for how you can improve your dental practice management experience.

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How To Get a Tax Credit for Health Insurance Costs

How To Get a Tax Credit for Health Insurance Costs

Tax Credit Health InsuranceYou may find it’s easy for you to focus on the effects of health insurance on your patients. But have you considered how the costs affect your own employees?  There are two certainties in life: We all know that can count on death and taxes. But rising health care costs are probably a close third on that list. A great way to offset that cost is to take advantage of the health care tax credit.

Who’s eligible for the health care tax credit?

According to the Government Accountability Office, in 2010 nearly 4 million small businesses were eligible for the credit, yet only 171,000 claimed it. If you’re concerned about missing out on this tax credit from prior years, you may be eligible to amend your tax return and still take advantage of the credit.

Is your dental practice eligible? 

If you employ fewer than 25 full-time equivalent employees, have an average annual compensation of less than $50,000, and pay at least 50 percent of your employees’ health care costs, then you are eligible for the tax credit. Don’t be scared off by the $50,000 limit on wages, as the calculation allows you to exclude owners, owners’ family members and seasonal employees. 

How much is the credit?

In 2012 it is up to 35 percent of the premiums paid, and in 2013, the credit increases to a maximum of 50 percent of premiums paid. Even better is that this is a tax credit, not just a tax deduction. That means every dollar saved by the credit goes directly into your pocket.

Concerned about your type of entity?

Don’t be. S-corporations, C-corporations, partnerships, sole proprietorships, and even tax-exempt organizations are eligible for the credit. So why miss out on this great opportunity to cut expenses and implement an effective dental practice management strategy.

Dental Practice Tax Help 

By now you may be asking yourself why you haven’t taken advantage of this tax credit. Don’t worry it’s not too late. Contact Rea & Associates. Our team of Dental CPAs can help you figure out what you might be eligible for, and how you can get some money back into your pocket, and ultimately improve your practice’s cash flow.

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