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.

Employee Dishonesty Coverage

Most dental practices have insurance policies that cover their employees, but is it enough? Does your practice have employee dishonesty insurance? This insurance protects the employer from financial loss due to the fraudulent activities of an employee or group of employees. The loss can be the result of the employee’s theft of money, securities (which includes checks) or other property of the insured. Of course, policy coverage may differ between insurance companies. The employer, the named insured on the policy, is the main entity insured. The “who” of coverage may also include all current or former employees, partners, members, directors, volunteers, trustees, seasonal employees and temporary workers at your direction or control. Employee dishonesty coverage is really a fidelity bond. The normal form of coverage is
a blanket policy which will cover fraud committed by any employee.

If the practice has access to other customer’s money, securities or property, the policy can be endorsed to include third party coverage. With the third party endorsement coverage is extended to a customer or client with whom you are under contract to perform services. As an example, employees often have access to patients credit card numbers. Does your insurance cover you if an employee steals that credit card information and uses it? Employee dishonesty coverage can typically be added to another insurance policy, such as the property or the fiduciary liability policy. The coverage may be extended to include forgery or alteration, funds transfer fraud, computer fraud, credit card fraud, money
order and counterfeit fraud.

With fraud and identity theft at an all-time high, you may want to review your policies and make sure you are covered!