5 Ways Dental Practices Can Take Advantage of the 20% Pass-Thru Deduction

5 Ways Dental Practices Can Take Advantage of the 20% Pass-Thru Deduction

Tax reform, commonly referred to as the Tax Cut and Jobs Act, has many new provisions that became effective for tax years beginning January 1st, 2018. One provision in particular created a deduction up to 20% of “qualified business income” earned from pass-thru entities and sole proprietors. Dental practice owners may want to consider this new tax savings opportunity, but it is subject to a host of qualifications and limitations, so it requires careful strategic tax planning. The deduction will be claimed on individual owners’ tax return Form 1040 and is commonly being referred to as the Section 199A deduction (referencing the Internal Revenue Code), or the 20% qualified business income deduction (QBID). Business income is eligible if the company is structured as a Sole Proprietorship, a Partnership, or an S-corporation. C corporations are not eligible to take this deduction. Personal taxable income must be less than $315,000 for a married filer or $157,500 for a single filer to avoid the deduction being phased out. The deduction is fully phased out at taxable income of $415,000 for a married filer and $207,500 for a single filer. Here are our Top 5 Strategies for dental practice owners to consider. Increased Retirement Plan Contributions Increasing retirement plan contributions can reduce taxable income. Consider increasing contributions to an existing plan and consider if establishing a cash balance plan might be an additional vehicle for increasing contributions. Employing Children in Your Practice You may have an opportunity to employ your children and pay them the highest reasonable rate for their work. Now each child can earn up to $12,000 per year free of federal...
Tax Reform Impact on Dental Practices

Tax Reform Impact on Dental Practices

On December 22, 2017, President Trump signed into law H.R. 1, formerly referred to as the Tax Cuts and Jobs Act of 2017 (TCJA).  2017 tax reform is the first major tax overhaul in 30 years, and will affect individuals, all types of business, tax-exempt entities, international taxation, and many other areas of tax law. Although the act is final, there is still a significant amount of guidance needed before we can really understand all of 2017 tax reform, and not all of the provisions are considered permanent.  Many of the provisions will expire after December 31, 2025 or another point in time, and caution should be taken when considering drastic changes in tax strategies or entity structuring. Below is a summary of some of the tax provisions affecting taxpayer’s and business and how they compare to pre-tax reform law. It is important that you are talking with your tax advisor about the potential planning opportunities available to you, and how the changes could impact your tax liability for 2018.   Individual Pre-Tax Reform Law Tax Reform 2017 Comments Individual rates Seven brackets under 2017 tax law were as follows; 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% Seven brackets under reform are as follows; 10%, 12%, 22%, 25%, 32%, 35% and 37%.  These brackets expire after 2025 tax year. Taxpayers will see rate cuts and higher income limits at most brackets. Standard deduction Deduction is $6,350 for single, $9,350 for HOH and $12,700 for joint return. Increased to $12,000 (single), $18,000 (HOH), and $24,000 (joint), and indexed for inflation before reverting to current law in 2026. The increased...
Potential Tax Reform Impact on Dental Practices

Potential Tax Reform Impact on Dental Practices

We have been promised all year that tax reform is coming and it looks like that promise will be fulfilled, but there are still steps that have to be taken for that to become a reality.  The House has proposed their plan and the Senate has proposed their own plan, but there are many differences that still need to be reconciled by each party. We have identified what we think are some of the major differences between the House’s plan and the Senate’s plan and summarized these in the table below.  The table also includes some of the provisions where the House and Senate agree and we will likely see impact to the dentists that we work with. As we navigate the final steps of tax reform it is important that you are talking with your tax advisor about the potential planning opportunities available to you for 2017.  It is also important that you understand how the above changes could impact your tax liability for 2018.   Individual Provisions House Senate Comments Individual rates Tax rate cuts for individuals and number of brackets reduced to four brackets of; 12%, 25%, 35%, and 39.6%. Seven brackets kept, but rates were cut in for most brackets.  Seven brackets are as follows; 10%, 12%, 22%, 25%, 32%, 35% and 37% Substantial rate cuts under each plan, but very different in structure. Standard deduction Increased to $12,200 (single) and $24,400 (joint), and indexed for inflation. Increased to $12,000 (single) and $24,000 (joint), and indexed for inflation before reverting to current law in 2026. The increased standard deduction will help those that do not...
How can a Dental CPA help your practice?

How can a Dental CPA help your practice?

What is the advantage in working with a Dental CPA compared to a traditional, general CPA? A Dental CPA has specific industry knowledge that can help you manage your practice efficiently so that you have more time to focus on your dentistry and more profitability to reach your goals. In addition to the services that you’d expect from a CPA firm like tax preparation, retirement services, investments services, and practice transitions, a Dental CPA can help you get the best available information about the health of your practice, assistance with planning to ensure that you will achieve your personal and professional goals, and excellent advice to help improve the profitability of your practice. A Dental CPA generally focuses on three areas, when starting business with a new client: Solid Bookkeeping Getting your bookkeeping in order is the first step when you begin working with a Dental CPA. While this is the most general and basic service that a CPA can provide, the industry knowledge of a Dental CPA can help make sure that the information is presented clearly and in a useful manner to you. Accounts can be arranged to make sure that the important information is prominent and easy to compare on your statements. Dental CPAs will also make sure that the accounting principles are being properly applied to your bookkeeping so that when an outside agency looks at your books, they don’t have to question the presentation or health of your practice. Some Dental CPAs provide monthly bookkeeping services, with monthly or quarterly meetings to review the financials statements, which ensures that you will understand and be...
Megan Urban brings years of experience to Jones & Roth Dental Team

Megan Urban brings years of experience to Jones & Roth Dental Team

The Jones & Roth Dental CPAs & Advisors have partnered with well-known Dental Practice Advisor Megan Urban to bring a wide suite of services to dental practices across the Pacific Northwest. This partnership offers an end-to-end suite of services for dental practice success. Megan has been serving the dental industry for over 25 years. She began her journey as a dental assistant and ultimately became a Regional Manager for a large dental group. She has an extensive background in helping dental teams reduce stress and become more profitable, by locating areas of opportunity and helping set solid systems within the practice. Areas of expertise include: Fee Analysis Patient Retention Optimal scheduling Patient Financial Arrangements Collections & Credit Balances Management Treatment Presentation Incomplete Treatment Follow-up No-show & Short Notice Cancellation Reduction Operational System Development Patient Communications & Scripting Growth & Expansion Strategies and Planning Practice Transitions Team Interviewing, Training, Compensation, and Performance Management Jones & Roth Dental Team Leader Jeremy Prickel, CPA stated: “Megan Urban’s expertise and services offering represents a terrific resource for Jones & Roth dental practice clients. We’re very excited to combine Megan’s practice management advisory capability with our financial management expertise and believe our combined efforts will successfully support dental practices looking to make the most of their...
Make Your Practice Shine with a Standardized Dental Chart of Accounts

Make Your Practice Shine with a Standardized Dental Chart of Accounts

CPAs and Accountants have a love/hate relationship with QuickBooks and other small business accounting applications. We love how it provides a fully featured, affordable bookkeeping solution. We hate what happens to reports like the Dental Chart of Accounts when it isn’t used properly. In dental accounting, we often see books that are not in good shape. Highly qualified dental bookkeepers are rare. Staff that may have multiple duties and wide practice management skill sets that are not primarily bookkeeping are often put in charge of the books. Expert advice or training is not always obtained. Let’s be clear, this is stepping over a dollar to save a nickel. If your books are inaccurate and difficult to understand, it’s going to cost more than you might realize. Very commonly, more than half of the time a CPA spends on a dental tax return is simply fixing bookkeeping errors and figuring out what transactions were posted where, and why. It shouldn’t be this way, and it doesn’t have to be. What if your bookkeeping reports were reorganized into a proven format that has been optimized for dental practices, one that provides better information about your practice, and can be easily understood by any CPA? Out of all the bookkeeping changes that we usually recommend, this may be the most important. What is a Chart of Accounts? A Chart of Accounts is simply the list of all income, expense, and equity accounts that are needed for business bookkeeping. It also determines the organization and appearance of the financial reports that you generate. Take a look at an example of our Standard Dental...