Closing Costs: Selling A Practice to Supplement Retirement

Are you counting on your practice sale to fund your retirement?

If so, you may need a backup plan. Typically, after taxes and closing expenses, the profit from selling your practice is roughly equivalent to what you would take home from the practice after working an additional 1.5 – 2 years. As a result, many dentists fail to plan their finances for retirement.If you are considering retirement in the next ten to fifteen years, now is the time to start planning.

To start, ask yourself: How much will it cost to live once I retire? If you can’t answer that question, it is time to start calculating. Use your credit card statements and check register. You will need to include taxes, health insurance, medications, mortgage, travel, gas, insurance, repairs, maintenance, phone, clothes, gifts, entertainment, hobbies, food, utilities, and cable. Then, determine a monthly and annual cost of living.

Now is the time to get totally out of debt. Banks place liens on your practice when you borrow money or open a business line of credit. If you have borrowed money, the debt will have to be paid off before, or at the sale of your practice.

What investments and other assets do you own? Do you own stocks, bonds, fixed assets, cash, or money market accounts? How much income will these assets provide after retirement — and is it enough? Currently, social security is still viable, but will likely only fund a small portion of your retirement needs.

Determine whether your future total income from investments, social security, disability insurance, and any other sources will be enough to cover your future budget. If not, then you will either need to reduce your current and future standard of living, or lengthen your timeline for retirement.

The most common solution dentists see as the answer to retirement income is to sell their practice. If that’s your plan, you should probably be looking at other options to supplement your retirement.

If you haven’t started planning yet, now is the time.

• Jennifer Furey, CPA

TAX ALERT 2014

The president signed a one-year extension of more than 50 expired tax breaks. Some of the extended provisions include:

For Individuals:
• Deductions for certain expenses of eligible school teachers
• Deductions for state and local general sales taxes
• Deduction of qualified tuition and related expenses
• Tax-free charitable contributions from IRAs

For Businesses:
• Research and development credit
• Section 179 – enhanced expensing deductions
• First year bonus depreciation
• Work opportunity tax credit
• Reduced recognition period for the built-in gains of S-corporations

The reinstatement of more than 50 expired tax breaks is a positive thing for 2014 for individual and business taxpayers. Please refer to a recent William Vaughan Company blog for last minute actions to further reduce 2014’s tax liability.

Contact your William Vaughan Company professional for additional information on the specific provisions that could benefit you.

Thinking About Hiring Your Children In Your Dental Practice?

Generally they will be in a lower tax bracket than you. Therefore, you can shift income from your higher tax bracket to your children’s lower tax rates.

In order to qualify as a deductible business expense, there are four criteria that must be met.

1. The compensation must be shown as an ordinary and necessary expense connected with the practice.
2. The pay must be reasonable, defined as the amount normally paid for similar services.
3. The services must actually be provided.
4. The compensation must be paid.

Your child is eligible to contribute up to $5,000 to an individual retirement account (IRA). Thus, in 2014, your child can earn $11,200 without paying any Federal income tax if they contribute the full $5,000 to an IRA.

They could also decide to contribute up to $5,000 to a Roth IRA. They would then pay about $500 of federal income tax, but all the qualified distributions from the Roth IRA would be then tax-free.