Tax Planning For Dentists Part 1, Section 179 Depreciation.
4th. Quarter is approaching and if you had still no meeting with your CPA, you probably should do now (after September 15 tax deadline please) to check for your progress and potential tax liability for 2018.
Some potential issues that will this year be of importance are as follows:
- Section 199A. Exclusion of 20% of Net Income for Pass-through Entities.
- General tax planning. (A must for all dentists).
- New Section 179 & Bonus Depreciation rules.
- Personal Financial Planning
- Employees vs. Independent Contractor Status of Associate Dentists and Specialists Hot Topic)
Most articles I write deal with daily issues that happen to my clients or my close friends’ dental offices ( E.g. see my article about Employee Fraud In Dental Office, Due Diligence Before Buying a Dental Office, 1099 vs W2 analysis.), since I am involved in those the most and can speak from frontline first hand. This article and a few more that will follow will primarily focus on tax decreasing strategies for 2018 for dentists. Please note that same approach will not be suitable for all professionals, and you should employ the services of your own tax and legal consultant before implementing any changes.
This is my analysis for my wife’s dental office that just purchased a Cone Beam.
This article will elaborate purchasing equipment to be used in dental business from medical/dental, financial, tax, and marketing points of views.
It was also my intention to write the subject matters in that specific order since the most important consideration should be how it can add value from medical/dental side of the business although the main issue of this article deals with financial and tax side of the acquisition. My analysis always looks at a transaction from many different points of views. Through my exposure, experience and education (and especially through my mistakes), I pay close attention to financial and non-financial sides of a transaction.
First, how come our office needs a Cone beam?
- Our old pano recently stopped work.
- We have two specialists that offer advanced dentistry and who want three-dimensional images to assist with complicated procedures (E.g. Perio & Endo). That allows them to evaluate patients’ condition which can avoid serious medical and legal complications.
- We can use the images to expand our medical billing (E.g. Sleep Apnea).
- We can use the Cone Beam Technology to increase our marketing exposure.
- We expect this year to be an average profitable year. We have no more depreciating expense available though, after expensing it all since we bought the practice.
- Rates and terms available are good.
- We will be able to present treatment plantings better to patients.
- We expect increase case acceptance.
- Prior to owning a CBCT system, we found ourselves regularly sending patients for 3-D images provided by an outside scanning company. Our patients were charged almost $300. And it slowed the process. We can increase our own production.
2018 TAX BACKGROUND:
Section 179 of the IRC allows the taxpayer to expense the purchase of qualified equipment in the year of purchase as opposed to depreciating the cost of the purchase over several years (typically 5-7 for equipment). Section 179 depreciation expensing limits have been raised to $1 million per year, with a spending cap phase-out starting at $2.5 million of equipment purchased in a given year. This became effective on Jan. 1. Bonus depreciation, which was 50 percent, increased to 100 percent for any equipment acquisitions subsequent to September 27, 2017. This includes both new and used property acquired. Consult with your dental CPA on the specifics of depreciation and bonus depreciation.
QUESTION: When is the right time to purchase new equipment?
Usually these types of discussions come up at the end on the year when Taxpayer/DDS has a good year and has too much money and starts to compute his/her potential tax liability and is shocked or unhappy to send a big check to taxing agencies. Another issue that might trigger such thoughts at the end of the year is when Taxpayer withdrew and spent too much money during year, made no estimated prepayments and does know how to bring up the necessary cash to pay current year’s taxed (TAX TRAP).
End of the year is also the time when you might receive a phone call from your equipment vendor or dental equipment sales rep informing you of their new deals, discounts, incentives and rebates. These types of sales/incentives also occur right before these companies are short before closing their own fiscal years and want to improve sales/books with another incentive to increase sales. Taxes should never be your primary concern to purchase any equipment.
- Only buy when you think the purchase will give you a positive economic return and there is clear business demand.
- You should always meet you Dental CPA and Financial Adviser (preferably a Fee only and Fiduciary that is not a sales person). At the beginning and during year for tax planning and cash management.
- Buy equipment in your practice ONLY when it makes business sense to do so!
- Don’t ever spend money just for a tax deduction
- If you do not have cash to pay your taxes, do not incur more debt. Talk to a tax resolution specialist. Also talk to a Dental CPA and financial adviser to work on budget and system to avoid these mistakes in future.
- Section 179 might be overvalued. There is no extra tax deduction.
- Buying an equipment must add to your overall practice and personal finances and make you a wealthier person.
If you have any questions about potential transactions and 2018 tax planning, please call us at 818-884-2549 today and schedule an appointment for your free consultation. There’s no obligation so call now!
DENTAL ACCOUNTING AND TAX SERVICES In LOS ANGELES
Our Dental CPA firm is located in Los Angeles, CA specializing in dental accounting, consulting, tax and financial planning services for the professionals in the dental industry. We’ll take tedious accounting and bookkeeping tasks off your hands, saving your time and resources, so you can concentrate on the clinical side of dentistry business. Our highly effective tax planning strategies will ensure that your practice is taking advantage of all available deductions so you certainly not overpay your taxes.
We work with everyone from general dentists and independent dental contractors to orthodontists, oral surgeons and all kinds of dental professionals. Our goal is to effectively manage your finances so you can focus on caring for patients. Call us today at (818) 884-2549 to schedule a free initial consultation with Los Angeles Dental CPA so we can learn more about the accounting and tax needs of your practice.
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