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12.09.05 Issue #196  
Tax Tips for Dental Professionals

Bruce Bryen, CPA
Partner, The Snyder
Group, LLC

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1. Initiate or upgrade a retirement plan. If you have an “off the shelf” employer-sponsored retirement plan, such as a 401K, profit-sharing, SIMPLE, or SEP plan, you may think you are doing all you can to plan for retirement. But as a dental professional, if you pay more than 30K in taxes each year, you will reap much greater tax advantages by implementing a retirement plan designed for you through your business. A  Defined Benefit Retirement Plan is customized by actuarial and accounting professionals to maximize retirement savings, and reduce your taxable income. Additionally, any employer sponsored retirement plan can be upgraded to give you greater retirement savings, and to reduce your tax burden NOW. In fact, a properly designed defined benefit plan may allow you to save up to $100K per year for your retirement — far more than the defined contribution plans you can use for your business, and a great deal more than the limits set for individual retirement accounts. The goal is to accumulate wealth more quickly to meet your retirement goals.  And, the older you are, the more this type of plan benefits you. Best of all, with an experienced professional leading the way, designing and implementing a plan can take less than 10 days.

If you have had a profitable year, saving more toward retirement makes sense in the long-term and short-term.

2. Get a retirement plan deduction for 2005, without paying into the retirement fund until fall, 2006. Did you know that with the right type of retirement plan, you can earn a tax deduction in the current year and not make the payment for that deduction until you file your tax return? If you use extensions to file your tax return, this can mean not funding your deduction until September or October of 2006, depending on your business entity structure. This opportunity exists for both cash basis taxpayers and accrual method taxpayers.

3. Pay all liabilities before December 31st. Borrow money if you have to. Most dentists are cash basis taxpayers, which means you report the money you collect as income and deduct the money that you pay as an expense. But many dentists miss the opportunity to deduct items that are owed before the end of December because they don’t have the cash on hand to pay the bill in December. That’s a mistake. Here are some ideas that can help you pay the bills in December, and will help you maximize the expenses you can claim in 2005. Defer your own bonus for 2005 until 2006. Use that money to pay liabilities in December. By doing this you have effectively reduced your income for the year, as well as increased the expenses you can claim for 2005. You can pay yourself a bonus in 2006, instead. Talk about a win-win situation! Other ideas to maximize your year end deduction include; borrowing from or paying bills from a credit card (you can pay the credit card bill in full in January, eliminating finance charges, and perhaps even racking up extra rewards points offered by your credit card company), or borrowing from a specialty lender which offers lines of credit for dental professionals.

4. Acquire equipment or furnishings by year’s end if you need them! Section 179 of the IRS code now allows you to write off $105K in one year. This means you can and should accelerate your depreciation expense by purchasing needed equipment, supplies and materials before December 31, and put them to work for you by that date. Under this rule, the tax savings can occur in 2005 even if you pay for it over a period of years. This means you can arrange financing and pay for the equipment with some of the tax savings that you are getting now, enjoy the tax benefit and the additional revenue that the equipment will be producing for you over the term of the loan. Now that’s smart thinking.

5. Update or expand your office space with leasehold improvements. The depreciation on leasehold improvements is now available in an accelerated format. In October 2004 the IRS rules changed to allow you to write off any leasehold improvements within 15 years instead of 39 years. Improvements must be in place before January 1, 2006 to qualify.

This is especially important if you are thinking about a longer term on your lease. You may be able to afford to create a much more modern and attractive office format by expensing those leasehold improvements over a much shorter period than before. You may be able to negotiate a lower lease payment by letting the landlord know that you will be improving the value of the property for the landlord. The lease negotiation works because the landlord will see a way to upgrade the value of the property without investing in it directly.

6. Write off bad debt. You can realize a 100% deduction on business bad debt, if you abide by IRS rules. The IRS defines bad debt by industry guidelines. For a specialist, this may mean 120 days; for a generalist it may mean 90 days. An effort must be made to collect the debt. For cash basis taxpayers, of course, there is no write-off possible for bad debts because the receivable was never reported as income.

Bruce Bryen, CPA has successfully assisted dentists with their personal and financial matters for over thirty years. As a partner in The Snyder Group, he delivers creative strategies and prudent financial strategies to help dentists build and protect wealth at every stage of their careers. His extensive expertise includes financing, debt restructuring, retirement planning, and tax advising to help dentists keep more of what they earn.
He can be reached at 1-800-988-5674

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