Dental Practice Spring Checkup

In addition to providing for you and your family, your dental practice is a part of this country’s small business job creation engine. Small businesses make up 99.7% of U.S. employer firms and account for 64% of net new private sector jobs.* Conducting an annual review of your practice finances can help keep your business healthy and growing.

 

Management

No doubt you are pivotal to the success of your practice, however, at some point it’s important to focus on bringing up the next level of management, especially if you would like to sell your practice or pass it on in the future. While mentoring the key individuals who can effectively run the business, don’t forget about key person insurance for them. It’s designed to protect your business if you, a partner or another key employee were to die prematurely.

Plan ahead

What would happen to your practice if you or one of your key employees could no longer work? Unless you’ve planned ahead, the practices’s continued success, continuity of management and the future of all the families your practice supports could be jeopardized. Would the absent employee’ family — which could be yours — be fairly compensated for their interest in the practice if that interest needed to be sold?

A buy-sell agreement combined with key person insurance can help relieve concerns you may have. Work with your financial professional and attorney to make sure the agreement is drafted properly to address your and your practice needs.

Risks

Do you have appropriate processes and procedures in place to handle human resources and compliance issues, such as the new health care coverage rules under the federal health reform law? When was the last time you reviewed your practice’s insurance coverage with your financial professional? You may discover that your practice does not have all the coverage it needs in this litigious climate. Ask about umbrella and general liability insurance.

* Frequently Asked Questions about Small Businesses, SBA Office of Advocacy, September 2012

How to Use Year-End Numbers for Your Dental Practice

Now that you have final numbers for 2013, it is a good time to sit down with your CPA to review your practice’s financial standing to prepare for the new year. From your year-end financial statements, you can compare fluctuations in your practice from year-to-year as well as provide a benchmark to compare with industry statistics. These numbers really tell the story of your practice. They tell how you choose to operate your practice, what worked and what did not.

Watch your business by tracking key statistics such as collections, adjustments, new patients and accounts receivable aging.

Looking at your revenue stream, it is a good time to review the insurance providers your practice accepts. Review how quickly they reimburse you, how much extra work do they create and are there other providers that should be considered. Your practice manager’s input may be valuable to help determine which carriers remain.

This would also be a good time to discuss specific issues within the practice, from business procedures to routine office policies and employee problems to potential hiring of additional staff.

Other questions you may need to address might be: What changes are anticipated within the practice in the coming year? Are rental or lease agreements expiring? Are you planning any large purchases? Are there any regulatory changes or retirements of key personnel on the horizon? Are there any plans to acquire another practice or potentially sell the practice?
Envision what success looks like in 2014 and set goals and a develop a plan how to achieve them.

Maximize Equipment Tax Deductions

Your practice doesn’t have to settle for depreciating equipment over several years. With the “Section 179” deduction, you can generally elect to deduct machinery and equipment in one year.

The maximum Section 179 allowance for 2013 (and 2012) is $500,000, unless Congress acts to change the amount.

For many dental practices, this is one of the best tax breaks available today, yet many fail to take full advantage of it. Let’s say you spend $125,000 on equipment this year. How do your options look?

With the Section 179 election: You can write off the entire $125,000 in one year, rather than depreciating it over several years. This includes dental equipment, machines, computers, copiers, fax machines, telephone systems and office furniture.

Without Section 179: Money spent to purchase business equipment is treated as a capital expense and may have to be recovered over a period of years through depreciation or amortization.

In order to qualify for the tax break, you must use the equipment more than 50 percent of the time for business. (If you use it for personal purposes too, you must maintain records and can write off only the business-related percentage.)

There are a number of other restrictions: For example, for 2013, if the cost of all qualifying acquisitions exceeds $2 million during one year, the deduction is reduced on a dollar-for-dollar basis (unchanged from 2012).

In addition, the amount you write off for Section 179 can’t exceed the taxable income from your business. That may be a problem for C corporations if the business zeroes out its income by paying everything in salaries because there won’t be enough income to cover the Section 179 election.

It might be better if the corporation pays less compensation and keeps enough taxable income to cover a Section 179 election. You can also carry over any excess to future years if you run up against the income limitation.

What if your C corporation operates at a loss this year but expects to turn a profit next year? You might be better off not taking the expense this year and carrying it forward, rather than depreciating equipment purchased this year over several years.

With some careful timing, you can fully utilize the tax break this year. Look around your practice toward year-end and buy any equipment you need.

As long as you “place it in service” by December 31, you can deduct the equipment with Section 179. You can even pay for it next year on credit and still write it off on this year’s tax return.

Tip: Some dentists are involved in more than one venture. In the case of pass-through entities (partnerships, LLCs, and S corporations), the dollar limitation rules for the Section 179 deduction apply at both the entity level and the owner level. (IRS Regulation 1.179-2) Therefore, advance planning may be necessary to maximize Section 179 deductions at the owner level, which is where the write-offs really count. Consult your tax adviser for details.