Practice Management

Only for Dentists Principal, Bassim N. Michael Presents on Buying and Starting a Dental Practice

On June 10, 2015, Only for Dentists principal, Bassim N. Michael, CPA, MS Tax, presented at the Hilton Santa Clara on what dentists need to know when buying or starting a dental practice. This event was put on by the California Dental Association.

In his presentation, Mr. Michael addressed the current economic trends in dentistry and how they affect the success of a dental practice. He also explained how dentists can find the right practice to purchase and what tax consequences potential buyers should consider given the circumstances.

View Mr. Michael’s presentation in its entirety here.

For more information on buying or starting a dental practice, please contact Bassim N. Michael, CPA, MS Tax.

Are You Using the Right Business Structure for Your Dental Practice?

The business structure you use – sole proprietor, LLC, etc. – has tremendous impact on how your dental practice operates and pays taxes.

A business structure is simply an organizational framework. The IRS requires you to select one for your company, since this designation will determine the tax forms you’ll file as well as who is responsible for the company’s liabilities and debts. If you’ve already started a dental practice and have been operating as one of these structures, you should occasionally re-evaluate your status, especially if you’re growing and/or adding to your organizational structure.

Here are the most common business structures and some of their attributes.

Sole Proprietorship

Whether you’re selling handmade items on Etsy or working solo in a profession like law or real estate, you’re most likely a sole proprietor (though you have other options). While you may have taken this route so you could be your own boss, there are drawbacks, including the fact that you are 100 percent responsible for your company’s liabilities.

You may also find it difficult to get financing.

Figure 1: If this IRS form looks familiar and you don’t have any employees or partners, you’re most likely a sole proprietor.

The IRS defines a sole proprietor as “someone who owns an unincorporated business by himself or herself.” If you fit this definition, and you netted more than $400 as a self- employed person, you’re required to file a Schedule C with your Form 1040 that outlines your income and expenses. Since you are your own employer, you must pay Self-Employment Tax, the Medicare and Social Security taxes that employers pay for W-2 employees, as well as quarterly estimated taxes.

Note: Even if you have an employer who issues you a W-2 form, you must still complete a Schedule C for any side businesses you have.

Limited Liability Company (LLC)
Individuals (and other business entities) can also structure themselves as LLCs. The regulations for these vary by state, and tax obligations are a little more complex than for a sole proprietorship. We can help you decide if this is a good choice for you.

C Corporations
Businesses that choose this structure are generally larger companies with many employees. Since the company functions as a separate legal entity, no individuals are subject to personal liability. They file the IRS Form 1120 (among other documents) instead of a 1040, and they can sell stock in the company to raise revenue. On the downside, C Corporations have complex administrative requirements. They must pay corporate tax, and their shareholders pay tax on dividends on their own returns.

Partnerships
Partnerships – and there are multiple types – are also very complex entities. They consist of two or more individuals who are not considered employees, but who are personally liable for the partnership’s debts and other obligations. The partnership itself is not required to pay income tax like corporations do. Rather, they file a Form 1065 to report income, deductions, etc. Profits or losses are then “passed through” to the partners, who file Form 1040 as if they were sole proprietors, but who must attach a Schedule K-1 to the 1065.

You can see from this brief discussion that the business structure you select has enormous influence on your income tax obligations and your personal liability. Before you make a decision, or if you’re considering changing an existing structure, let us walk you through all of the possible implications for your practice.

What Does the Executor of a Will Do?

A number of decisions have to be made when a Last Will and Testament is created for a dental practice owner. The majority of those decisions relate to the disposition of estate assets. However, there are other decisions that must be made as well, including the appointment of an Executor. All too often, the appointment of an Executor is more of an afterthought and is done without giving the choice much thought. A better understanding of the numerous and varied duties and responsibilities of an Executor, however, should point out the importance of taking the time to choose the right person for the job. Among those duties and responsibilities are the following:

  • Securing estate assets – immediately following the death of the decedent, the Executor must locate, secure, inventory, and value all assets in which the decedent had an ownership interest.
  • Opening probate – documents must be prepared and filed, along with the original Will, with the appropriate probate court to open the probate of the decedent’s estate.
  • Notifying creditors – creditors of the estate must be notified that probate has been started. Notice must also be published in a local newspaper for unknown creditors.
  • Reviewing claims – creditors have a specific amount of time within which to file a claim against the estate. The Executor must review all claims and approve or deny the claim. Approved claims must then be paid out of estate assets.
  • Defending the estate – if the Will is challenged, or a creditor whose claim was denied chooses to litigate the claim, the Executor must defend the estate throughout the subsequent litigation.
  • Managing property –the Executor is responsible for managing estate property throughout the probate process. For real property, this may include everything from ensuring that taxes are paid to overseeing necessary repairs or maintenance.
  • Selling property – sometimes, estate assets must be sold to pay creditor claims or to create the required division of assets as called for in the decedent’s Will. When assets must be sold, the Executor is responsible for overseeing the sale.
  • Paying taxes – before probate can be concluded, all personal and estate taxes must be calculated and paid by the Executor out of estate assets.
  • Transferring assets – finally, the Executor is responsible for ensuring that all documents necessary for the legal transfer of estate assets to the intended beneficiaries are prepared and filed, after which the assets are actually transferred to the new owners.

It should be clear at this point that the choice of an Executor can ensure that the probate process moves along smoothly and efficiently or can cause probate to turn into a lengthy and costly affair. This is why the choice should only be made after careful consideration and contemplation.

Does My Business Need to Collect Sales Tax?

Small dental practices face numerous hurdles along the way to success. At the top of the list is navigating the various local, state and federal taxes obligations the business incurs. Neglecting to file taxes that the company owes can cause a fledgling business to fail before it even gets off the ground. Among the potential tax obligations that a dental practice may incur is the requirement that the business collect sales tax. Calculating the amount of sales tax due is complicated. However, before a business gets to that point it must decide whether or not it is even required to collect the tax, and if so at what rate.

Sales tax laws and rates vary from one state to the next, and sometimes from one city to the next within the same state. In addition, the rates are subject to change, and do change on a regular basis. If you deliver products or services to people in a state within the United States in which your business has any type of physical presence, you may need to collect sales tax if that state imposes a sales tax.

Almost all products that are sold on a retail level are taxed, assuming the state in question collects sales tax. Some of the important exceptions include food, prescription drugs, animal feed and products that are intended for re-sale. Services are much more complicated. Some states exempt all services while others only exempt some services.

The requirement that your business has a “physical presence” in the state also leads to much confusion. A “physical presence” does not just mean an actual brick and mortar office. A call center, sales agents, warehouse or other “presence” in the state can create the legal nexus required to trigger the sales tax obligation.

If you are in doubt about your situation, feel free to call our office. We’d be happy to help you through the process.

5 Legal Problems to Avoid as a Small Business or Dental Practice Owner

It’s a fact of life, and a fact of business – mistakes happen all the time. But when business mistakes turn into legal problems, they can mean the difference between small business success and failure. Knowing what legal pitfalls to watch out for when running your dental practice can make a huge difference. Take note of five common legal problems that are best to avoid.

  1. Not formalizing your small business structure. If your practice is small, you might think it’s bothersome to complete all the documents of incorporation. However, structuring your entity formally in accordance with the law – regardless of size – can serve as important legal protection. For example, your personal assets could be in jeopardy in the event of a lawsuit, if you haven’t taken steps to separate them from your business, or otherwise taken steps to protect them.
  2. Violating business’ trademarks. If you have been suspected of infringing on an intellectual property right, such as a copyright or trademark, of another business, you open yourself up to a potential financially harmful lawsuit. In some cases, a intellectual property infringement can result in a “cease and desist” order, which means you must halt your business activity. Check with your attorney or the U.S. Patent and Trademark Office to ensure you’re intellectual property is yours – and yours alone.
  3. Not formalizing contracts. “Handshake deals” are a common practice in business. While they may happen on the golf course, make sure you formalize the contract in writing. In today’s bountiful litigious society, formalized contracts protect you, your dental practice and the third party.
  4. Failing to get legal advice. In an attempt to save money on legal costs, many startups and small dental practices either avoid hiring an attorney or try to get by by crafting their own legal documents. However, every business is unique, and if you enter into agreements that don’t protect you or your businesses’ interests, these actions may end up costing you significantly more had you sought legal council in the first place.
  5. Ignorance of the law. Every small business needs to heed the various laws that envelope the operation of the business and industry. Security laws relating to your investment capital, employee/employer laws, government industry regulations and abiding by intellectual property right laws are some of the areas with which to ensure compliance.

Keep in mind that these five points are intended as legal information, which isn’t the same as legal advice. Every dental practice is unique, so seek legal advice from a licensed attorney for your individual circumstances.

What is a PEO?

The acronym PEO stands for “professional employer organization.” These organizations help businesses reduce costs by allowing them to outsource the management of important company functions, such as workers’ compensation, payroll, employee benefits and human resources. By partnering with a PEO, a dental practice or other company can grow its bottom line and focus on its core tasks, such as marketing, production and customer service.

The Function of a PEO

When a dental practice begins working with a PEO, the PEO takes over many of the company’s most cumbersome human resource responsibilities. In addition to handling everyday human resource tasks, the PEO also assumes some of the employer’s legal responsibility for human resource issues, such as unemployment and healthcare, thus reducing the employer’s level of risk.

Once the employer establishes his relationship with the PEO, the PEO begins functioning as a second employer for its clients employees. Instead of coming to their legal employer with human resource concerns, employees will go to the PEO. The PEO manages all of the company’s human resource dealings on a daily basis, and the company no longer needs to worry about the accuracy of its payroll or whether its healthcare plan complies with federal regulations. Many PEOs even offer a comprehensive benefits package for employees that allows the PEO’s clients to become more competitive within the industry.

Benefits of a PEO

The business industry is always evolving. Congress enacts new laws, such as the recent change to healthcare regulation, and businesses must alter their procedures to comply with the new guidelines. When a company is small, keeping up with the constant changes can be nearly impossible. Instead of focusing on their most important tasks, employees are forced to spread themselves too thin. Furthermore, because employees are inexperienced in these areas, tasks are not completed as accurately and efficiently as they should be.

When a dental practice hires a PEO, most of these problems disappear. Instead of relying on its own overworked and under-prepared employees to handle unemployment insurance claims, payroll tax compliance, workers’ compensation claims and issues with employee healthcare, companies can rely on a PEO’s experts to take care of all of these obligations. Not only are these facets of the company’s operations dealt with more effectively, but employees also find themselves with more time to concentrate on activities that produce revenue for the company. Furthermore, all human resource tasks are completed with efficiency, and the company’s bottom line improves.

Business Structure Basics for Dentists

If you’re starting a dental practice or altering the framework of your existing one, be sure to choose the correct business structure and file the right income tax forms.

We don’t have to tell you how many decisions you have to make when you start a new business, or when your existing company changes in significant ways.

The most important issue you have to settle in terms of income taxes is your business structure, which provides answers to three basic questions:

  • Who is the company owned by?
  • How does the company distribute profits?
  • How are management tasks distributed?

You’ve heard their names a lot in the past, but you may not have known what great significance they would have for you as a business owner. Each has its own set of attributes, and each requires a different set of IRS tax forms and schedules.

Here’s a look at these options.

Sole Proprietor:  This is fairly self-explanatory. Do you own an unincorporated business by yourself?

Limited Liability Company (LLC):  You can be considered an LLC even if you are the only person involved in the business, but there is no maximum number of “members.” Each state establishes its own regulations for LLCs, so you’ll need to do some research if this is the structure you choose. We can help with this.

You’ll be treated by the IRS as either a corporation or a partnership.

Partnership

If you and one or more other individuals contribute to the business (money, property, skills, etc.) and share in both profits and losses, the IRS considers you a partnership. Partners are not considered employees, and the corporation does not pay income tax, though it’s required to file an informational return outlining income, deductions, etc. Profits or losses get “passed through” to the partners, and they must include information about their share on their own tax returns.

Corporation

Rather than being called “partners,” the participating individuals in a corporation are called “shareholders,” individuals who exchange money or property or both for capital stock. There’s actually a double tax involved in this type of business entity. The corporation pays taxes on profits, and then the shareholders are taxed when they receive dividends.

S Corporation

S Corporations avoid double taxation by passing through income, losses, deductions and credits to their shareholders, who include this income and loss on their personal tax returns – at their individual income tax rates. S Corporations must:

  • Be domestic corporations
  • Consist of “allowable” shareholders (i.e., individuals and some trusts and estates, but not partnerships, corporations or non-resident alien shareholders)
  • Have a maximum of 100 shareholders and only one class of stock
  • Not be an ineligible corporation, like some financial institutions and insurance companies

These are very general descriptions of the most common business structure classifications. If you’re deciding for the first time which you should choose for your dental practice, or if your company is planning a major organizational shift that will necessitate changing your business structure, we’ll help you explore the options and help you determine the most appropriate entity type.

Do I Need to Include Asset Protection in My Estate Plan?

A comprehensive estate plan should accomplish far more than just deciding who will receive your estate property after your death. Because of the unique nature of estate planning, the additional goals you include in your plan will depend on your needs and concerns. Asset protection, however, is a popular component included in many estate plans. A better understanding of what is meant by “asset protection” may help you decide whether or not it should be included in your estate plan.

If you have worked hard in your dental practice, saved frugally and invested wisely over the course of your lifetime, you undoubtedly want to protect the assets you have amassed as a result. Whether you realize it or not, your assets could be at risk in a number of ways. Consider these aspects:

  • Creditors – creditors of yours as well as beneficiaries can attach assets to an unpaid debt
  • Spendthrift beneficiaries – a “spendthrift” beneficiary can quickly deplete assets that are gifted outright to the beneficiary.
  • Divorce – you may have considered the impact of your own divorce on your assets, but have you considered what the divorce of a beneficiary can do to gifted assets?
  • Bankruptcy – likewise, a beneficiary’s bankruptcy can mean a loss of gifted assets if the asset is not protected from bankruptcy proceedings.
  • Medicaid eligibility – statistically speaking you stand about a 50 percent chance of needing to qualify for Medicaid during your “golden years” to cover the high cost of long-term care. To qualify, you may first be required to “spend down” your own assets, resulting in the loss of your life savings in a matter of months.

Proper estate planning can dramatically reduce, if not completely prevent, the loss of estate assets especially for dentists. A well drafted trust agreement, for example, can protect assets from creditors, beneficiaries, divorce and bankruptcy. Likewise, the incorporation of Medicaid planning techniques into your estate plan early on will ensure Medicaid eligibility without the loss of valuable assets should the need arise during your retirement years.

Dentists: Here’s Why Having a Will Is so Important

Despite knowing the importance of creating one, over half of all Americans do not have a valid Last Will and Testament in place. Often, the reason given for not executing at least a basic Will is the belief that one is not necessary. Consider the following five reasons why executing a Will is important, especially if you’re a dentist.

1. A Will allows you to control who inherits from your estate. When a decedent dies intestate, or without a valid Will in place, the state intestate succession laws govern what happens to the decedent’s estate assets. Intestate succession laws vary somewhat from one state to the next; however, they all share a common theme in that only a spouse and/or close relatives inherit from a decedent’s estate. Typically, a spouse and children inherit first, followed by parents and siblings. Close friends, distant relatives such as a favorite niece, and charities that are close to your heart will receive nothing from your estate.

2. A Will allows you to decide how much people inherit from your estate. State intestate succession laws also dictate what percentage of your estate each heir inherits. Assets intended for children from a previous marriage, for example, might be given to a current spouse. The only way to control how much of your estate is given to each beneficiary is to create a Will.

3. A Will allows you to determine what assets people inherit from your estate. Specific gifts can only be made in a Will. Intestate succession laws will not acknowledge, much less honor, promises made by you to gift specific items, such as family heirlooms or sentimental personal items, to anyone.

4. A Will prevents the sale of estate assets. Often, estate assets must be sold to create the funds necessary to divide the estate according to state intestate succession laws. Your home, family heirlooms, and other assets may be forever lost unless you execute a Will.

5. A Will is your only opportunity to nominate a guardian for minor children. If you have minor children the only opportunity you have to tell a judge who you would choose to be their guardian should one be needed is in your Last Will and Testament.

For more information about drafting a Will, please contact us!

Insurance for Data Breach – What Is It?

There are many challenges small companies, including dental practices, face in today’s highly competitive world of business. As such, many businesses have taken actions to streamline operations, and have made the move to paperless offices and cloud computing in order to get an edge over competitors. Unfortunately, this has left them vulnerable to a risk of a different nature – a data breach.

Hackers are evolving at a more advanced pace than the software to stop them in their tracks is. They want information of any kind about your practice, your employees, and the clients and customers who have trusted you with their personal, financial and medical information.

Why Do You Need Data Breach Insurance?
For most of today’s small businesses it’s not a matter of IF a data breach will occur, but WHEN will it happen. That’s why you need to invest in adequate data breach insurance coverage for your dental practice.

In addition to the public relations nightmare data breaches bring to businesses, there are costs that can be quite significant. These include costs of legal defense, credit monitoring services, court fees and even the expenses of notifying your patients that their information may have been compromised in the attack.

These costs can be particularly detrimental to your business if you’re paying for these costs completely out of pocket, without the help of insurance.

What Does Data Breach Insurance Cover?
The nature of data breaches is brutal for small dental practices that are ill-equipped to defend against brute force attacks despite their best efforts. Data breach insurance helps small dental practices in these events by covering the costs of:

  • Litigation defense
  • Forensic investigations
  • Crisis management and public relations
  • Notification expenses
  • Liability expenses

It’s important for you to be proactive in your efforts to avoid the scandal associated with data breach by establishing strict policies about passwords, device usage, social media, etc. and to purchase adequate data breach insurance as a backup plan for the time when data breaches do occur.

For more information, please don’t hesitate to contact us directly!